nep-gth New Economics Papers
on Game Theory
Issue of 2018‒12‒24
twenty papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Comprehensive Rationalizability By Burkhard Schipper; Martin Meier; Aviad Heifetz
  2. Efficiency, Stability, and Commitment in Senior Level Job Matching Markets By Ning Sun; Zaifu Yang
  3. Strategic Reasoning in Persuasion Games: An Experiment By Burkhard Schipper; Ying Xue Li
  4. Strategic Teaching and Learning in Games By Burkhard Schipper
  5. Kuhn's Theorem for Extensive Games with Unawareness By Burkhard Schipper
  6. Qualitative analysis of common belief of rationality in strategic-form games By Giacomo Bonanno; Elias Tsakas
  7. Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets Part I: Concept Analysis By Sarfatia, M.; M., Hesamzadeha.; Holmberg, P.
  8. Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets Part II: Solution Algorithm By Sarfatia, M.; M., Hesamzadeha.; Holmberg, P.
  9. Generalising Conflict Networks By Cortes-Corrales, Sebastián; Gorny, Paul M.
  10. Nash Implementation in Production Economies with Unequal Skills: A Characterization By Naoki Yoshihara; Akira Yamada
  11. Political Awareness, Microtargeting of Voters, and Negative Electoral Campaigning By Burkhard Schipper; Hee Yeul Woo
  12. The Dominium Mundi Game and the Case for Artificial Intelligence in Economics and the Law By Rodríguez Arosemena, Nicolás
  13. On Poverty and the International Allocation of Development Aid By Victor Ginsburgh; Juan D. Moreno-Ternero
  14. Information Nudges and Self-Control By Thomas Mariotti; Nikolaus Schweizer; Nora Szech; Jonas von Wangenheim
  15. FDI and International Collusion By Uday Bhanu Sinha
  16. Pricing in Day-Ahead Electricity Markets with Near-Optimal Unit Commitment By Eldridge, B.; O’Neill, R.; Hobbs, B.
  17. A Pigouvian Approach to Congestion in Matching Markets By He, Yinghua; Magnac, Thierry
  18. Expectations-Based Loss Aversion in Common-Value Auctions: Extensive vs. Intensive Risk By Benjamin Balzer; Antonio Rosato
  19. Competition in two sided markets with congestion By Swapnil Sharma
  20. Discretion Rather than Rules: Equilibrium Uniqueness and Forward Guidance with Inconsistent Optimal Plans By Campbell, Jeffrey R.; Weber, Jacob P.

  1. By: Burkhard Schipper; Martin Meier; Aviad Heifetz (Department of Economics, University of California Davis)
    Abstract: We present a new solution concept for strategic games called comprehensive rationalizability that embodies "common cautious belief in rationality" based on a sound epistemic characterization in a universal type space. It refines rationalizability, but it neither refines nor is refined by iterated admissibility. Nevertheless, it coincides with iterated admissibility in many relevant economic applications.
    Keywords: Common assumption of rationality, common belief in rationality, iterated admissibility, rationalizability, lexicographic belief systems
    JEL: C72
    Date: 2017–05–01
  2. By: Ning Sun; Zaifu Yang
    Abstract: We study a senior level job matching model with multiple heterogeneous incumbents and entrants. Incumbents can be committed or uncommitted (i.e., free). A committed agent is an incumbent (firm or worker) who has initially had a partner (worker or firm) and is bound by her commitment. A free agent is an entrant or an incumbent whose relation with by her initial partner is not binding. Every agent tries to find her best possible partner with contract. A committed agent cannot unilaterally dissolve her partnership unless her partner agrees to do so. We examine the problem of how to match workers and firms as well as possible and at the same time to set committed agents free as many as possible without violating their commitments to their partners. We show the existence of (strongly) stable and (strict) core matchings through a constructive algorithm and derive several properties of such outcomes.
    Keywords: Matching state, core, stability, commitment, procedure.
    JEL: C71 C78 J12
    Date: 2018–11
  3. By: Burkhard Schipper; Ying Xue Li (Department of Economics, University of California Davis)
    Abstract: We study experimentally persuasion games in which a sender (e.g., a seller) with private information provides verifiable but potentially vague information (e.g., about the quality of a product) to a receiver (e.g., a buyer). Various theoretical solution concepts such as sequential equilibrium or iterated admissibility predict unraveling of information. Iterative admissibility also provides predictions for every finite level of reasoning about rationality. Overall we observe behavior consistent with relatively high levels of reasoning. While iterative admissibility implies that the level of reasoning required for unraveling is increasing in the number of quality levels, we find only insignificantly more unraveling in a game with two quality levels compared to a game with four quality levels. There is weak evidence for learning higher-level reasoning in later rounds of the experiments. Participants display difficulties in transferring learning to unravel in a game with two quality levels to a game with four quality levels. Finally, participants who score higher on cognitive abilities in Raven's progressive matrices test also display significantly higher levels of reasoning in our persuasion games although the effect-size is small.
    Keywords: Persuasion games, verifiable information, communication, disclosure, unraveling, iterated admissibility, prudent rationalizability, common strong cautious belief in rationality, level-k reasoning, experiments, cognitive ability.
    JEL: C72 C92 D82 D83
    Date: 2018–02–19
  4. By: Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: It is known that there are uncoupled learning heuristics leading to Nash equilibrium in all finite games. Why should players use such learning heuristics and where could they come from? We show that there is no uncoupled learning heuristic leading to Nash equilibrium in all finite games that a player has an incentive to adopt, that would be evolutionary stable or that could "learn itself". Rather, a player has an incentive to strategically teach such a learning opponent in order to secure at least the Stackelberg leader payoff. The impossibility result remains intact when restricted to the classes of generic games, two-player games, potential games, games with strategic complements or 2 x 2 games, in which learning is known to be "nice". More generally, it also applies to uncoupled learning heuristics leading to correlated equilibria, rationalizable outcomes, iterated admissible outcomes, or minimal curb sets. A possibility result restricted to "strategically trivial" games fails if some generic games outside this class are considered as well.
    Keywords: Learning in games, Interactive learning, Higher-order learning
    JEL: C72 C73
    Date: 2017–05–01
  5. By: Burkhard Schipper (Department of Economics, University of California Davis)
    Abstract: We extend Kuhn's Theorem to extensive games with unawareness. This extension is not entirely obvious: First, extensive games with non-trivial unawareness involve a forest of partially ordered game trees rather than just one game tree. An information set at a history in one tree may consist of histories in a less expressive tree. Consequently, perfect recall takes a more complicated form as players may also become aware of new actions during the play. Second, strategies can only be partially an object of ex-ante choice in games with unawareness. Finally, histories that a player may expect to reach with a strategy profile may not be the histories that actually occur with this strategy profile, requiring us to define appropriate notions of equivalence of strategies.
    Keywords: perfect recall, mixed strategy, behavior strategy, unawareness.
    JEL: C72 D83
    Date: 2017–11–01
  6. By: Giacomo Bonanno; Elias Tsakas (Department of Economics, University of California Davis)
    Abstract: We study common belief of rationality in strategic-form games with ordinal utilities, employing a model of qualitative beliefs. We characterize the three main solution concepts for such games, viz., Iterated Deletion of Strictly Dominated Strategies (IDSDS), Iterated Deletion of Boergers-dominated Strategies (IDBS) and Iterated Deletion of Inferior Strategy Profiles (IDIP), by means of gradually restrictive properties imposed on the models of qualitative beliefs. As a corollary, we prove that IDIP refines IDBS, which refines IDSDS.
    Keywords: Qualitative likelihood relation, ordinal payoffs, common belief of rationality, iterative deletion procedures
    JEL: C7
    Date: 2017–05–11
  7. By: Sarfatia, M.; M., Hesamzadeha.; Holmberg, P.
    Abstract: This paper is part I of a two-part paper. It proposes a two-stage game to analyze imperfect competition of producers in zonal power markets with a day-ahead and a real-time market. We consider strategic producers in both markets. They need to take both markets into account when deciding what to bid in each market. The demand shocks between these markets are modeled by several scenarios. The two-stage game is formulated as a Twostage Stochastic Equilibrium Problem with Equilibrium Constraints (TS-EPEC). Then it is further reformulated as a two-stage stochastic Mixed-Integer Linear Program (MILP). The solution of this MILP gives the Subgame Perfect Nash Equilibrium (SPNE). To tackle multiple SPNE, we design a procedure which _nds all SPNE with di_erent total dispatch costs. The proposed MILP model is solved using Benders decomposition embedded in the CPLEX solver. The proposed MILP model is demonstrated on the 6-node and the IEEE 30-node example systems.
    Keywords: Two-stage game, Zonal pricing, Two-stage equilibrium problem with equilibrium constraints, Wholesale electricity market
    JEL: C61 C63 C72 D43 L13 L94
    Date: 2018–11–28
  8. By: Sarfatia, M.; M., Hesamzadeha.; Holmberg, P.
    Abstract: In part I of this paper, we proposed a Mixed-Integer Linear Program (MILP) to analyse imperfect competition of oligopoly producers in two-stage zonal power markets. In part II of this paper, we propose a solution algorithm which decomposes the proposed MILP model into several subproblems and solve them in parallel and iteratively. Our solution algorithm reduces the solution time of the MILP model and it allows us to analyze largescale examples. To tackle the multiple Subgame Perfect Nash Equilibria (SPNE) situation, we propose a SPNE-band approach. The SPNE band is split into several subintervals and the proposed solution algorithm finds a representative SPNE in each subinterval. Each subinterval is independent from each other, so this structure enables us to use parallel computing. We also design a pre-feasibility test to identify the subintervals without SPNE. Our proposed solution algorithm and our SPNE-band approach are demonstrated on the 6-node and the modified IEEE 30-node example systems. The computational tractability of our solution algorithm is illustrated for the IEEE 118-node and 300-node systems.
    Keywords: Modified Benders decomposition, Multiple Subgame Perfect Nash equilibria, Parallel computing, Wholesale electricity market, Zonal pricing
    JEL: C61 C63 C72 D43 L13 L94
    Date: 2018–11–28
  9. By: Cortes-Corrales, Sebastián; Gorny, Paul M.
    Abstract: We investigate the behaviour of agents in bilateral contests within arbitrary network structures when valuations and efficiencies are heterogenous. These parameters are interpreted as measures of strength. We provide conditions for when unique, pure strategy equilibria exist. When a player starts attacking one player more strongly, others join in on fighting the victim. Different efficiencies in fighting make players fight those of similar strength. Centrality of a player (having more enemies) makes a player weaker and her opponents are more likely to attack with more effort.
    Keywords: Contest, conflict, networks, games on networks
    JEL: C72 D74 D85
    Date: 2018–11–13
  10. By: Naoki Yoshihara (School of Management, Kochi University of Technology); Akira Yamada (Sapporo University)
    Abstract: The present study examines production economies with unequal labor skills, where the planner is ignorant of the set of feasible allocations in advance of production. In particular, we characterize Nash implementation by canonical mechanisms by means of Maskin monotonicity and a new axiom, non-manipulability of unused skills (NUS), where the latter represents a weak independence property with respect to changes in skills. Following these characterizations, we show that some Maskin monotonic social choice correspondences are not implementable if information about individual skills is absent.
    Keywords: Unequal labor skills, Nash implementation, Canonical mechanisms, Non-manipulability of unused skills
    JEL: C72 D51 D78 D82
    Date: 2018–12
  11. By: Burkhard Schipper; Hee Yeul Woo (Department of Economics, University of California Davis)
    Abstract: We study the informational effectiveness of electoral campaigns. Voters may not think about all political issues and have incomplete information with regard to political positions of candidates. Nevertheless, we show that if candidates are allowed to microtarget voters with messages then election outcomes are as if voters have full awareness of political issues and complete information about candidate's political positions. Political competition is paramount for overcoming the voter's limited awareness of political issues but unnecessary for overcoming just uncertainty about candidates' political positions. Our positive results break down if microtargeting is not allowed or voters lack political reasoning abilities. Yet, in such cases, negative campaigning comes to rescue.
    Keywords: Electoral competition, campaign advertising, multidimensional policy space, microtargeting, dog-whistle politics, negative campaigning, persuasion games, unawareness
    JEL: C72 D72 D82 P16
    Date: 2017–05–01
  12. By: Rodríguez Arosemena, Nicolás
    Abstract: This paper presents two conjectures that are the product of the reconciliation between modern economics and the long-standing jurisprudential tradition originated in Ancient Rome, whose influence is still pervasive in most of the world's legal systems. We show how these conjectures together with the theory that supports them can provide us with a powerful normative mean to solve the world's most challenging problems such as financial crises, poverty, wars, man-made environmental catastrophes and preventable deaths. The core of our theoretical framework is represented by a class of imperfect information game built completely on primitives (self-interest, human fallibility and human sociability) that we have called the Dominium Mundi Game (DMG) for reasons that will become obvious. Given the intrinsic difficulties that arise in solving this type of models, we advocate for the use of artificial intelligence as a potentially feasible method to determine the implications of the definitions and assumptions derived from the DMG's framework.
    Keywords: Game Theory; Artificial Intelligence; Dynamic Programming Squared; Imperfect Information Games; Law and Economics
    JEL: C7 C73 D6 K0
    Date: 2018–12–15
  13. By: Victor Ginsburgh (ECARES, Université Libre de Bruxelles, Belgium and CORE, Université catholique de Louvain, Belgium); Juan D. Moreno-Ternero (Department of Economics, Universidad Pablo de Olavide;)
    Abstract: We analyze the role of poverty levels on the allocation of international development aid. We estimate “claims" for each recipient, based on the incidence and depth of poverty in its territory, and explore possible reallocations of the current (overall) official development assistance (ODA) based on those claims. We consider four allocation rules rooted in ancient sources: the Aristotelian proportional rule, two constrained egalitarian rules, inspired by Maimonides, and the Talmud rule. Each of them is grounded on different normative principles, which allows assessing claims in different ways. Our results indicate that the current allocation of international development aid cannot be supported by any of those rules, which leads us to conclude that the allocation of ODA is not driven by eradicating world's poverty as a goal.
    Keywords: Poverty; Development; Aid; Resource Allocation; Claims
    JEL: D63 F35 I30 O10
    Date: 2018–12
  14. By: Thomas Mariotti; Nikolaus Schweizer; Nora Szech; Jonas von Wangenheim
    Abstract: We study the optimal design of information nudges for present-biased consumers who have to make sequential consumption decisions without exact prior knowledge of their long-term consequences. For arbitrary distributions of risk, there exists a consumer-optimal information nudge that is of cutoff type, recommending consumption or abstinence according to the magnitude of the risk. Under a stronger bias for the present, the target group receiving a credible signal to abstain must be tightened. We compare this nudge with those favored by a health authority or a lobbyist. When some consumers are more strongly present-biased than others, a traffic-light nudge is optimal.
    Keywords: information design, information nudges, present-biased preferences, self-control
    JEL: C73 D82
    Date: 2018
  15. By: Uday Bhanu Sinha (Department of Economics, Delhi School of Economics)
    Abstract: We develop a supergame model of collusion between price-setting oligopolists when the trade between countries involves per-unit trade cost and FDI requires a fixed cost of setting up a subsidiary in a foreign country. We demonstrate that cross hauling of FDI may facilitate collusion based on territorial allocation of markets. Whenever FDI is not helpful for sustaining collusion, the collusive arrangement involves no FDI at all. With asymmetric number of home firms or with different sizes of the markets, FDI may facilitate international collusion at lower levels of trade costs and thus our analysis also throws some light on the empirical puzzle regarding the trade liberalisation and FDI flows observed since the 1990s.
    Keywords: Foreign direct investment, collusion, multimarket contact, cross hauling of FDI, price competition, homogenous good.
    JEL: D43 F12 F15 F21 F23 L13 L41
    Date: 2018–12
  16. By: Eldridge, B.; O’Neill, R.; Hobbs, B.
    Abstract: This paper revisits some peculiar pricing properties of near-optimal unit commitment solutions. Previous work has found that prices can behave erratically even as unit commitment solutions approach the optimal solution, resulting in potentially large wealth transfers due to suboptimality of the solution. Our analysis considers how recently proposed pricing models affect this behavior. Results demonstrate a previously unknown property of one of these pricing models, called approximate Convex Hull Pricing (aCHP), that eliminates erratic price behavior, and therefore limits wealth transfers with respect to the optimal unit commitment solution. The absence of wealth transfers may imply fewer strategic bidding incentives, which could enhance market efficiency.
    Keywords: Unit commitment, nonconvex pricing, mixed integer programming, market design
    JEL: C60 C72 D44 L94
    Date: 2018–11–28
  17. By: He, Yinghua (Toulouse School of Economics); Magnac, Thierry (University of Toulouse I)
    Abstract: Recruiting agents, or "programs" costly screen “applicants” in matching processes, and congestion in a market increases with the number of applicants to be screened. To combat this externality that applicants impose on programs, application costs can be used as a Pigouvian tax. Higher costs reduce congestion by discouraging applicants from applying to certain programs; however, they may harm match quality. In a multiple-elicitation experiment conducted in a real-life matching market, we implement variants of the Gale-Shapley Deferred-Acceptance mechanism with different application costs. Our experimental and structural estimates show that a (low) application cost effectively reduces congestion without harming match quality.
    Keywords: Gale-Shapley Deferred Acceptance Mechanism, costly preference formation, screening, stable matching, congestion, matching market place
    JEL: D78 D50 D61 I21
    Date: 2018–11
  18. By: Benjamin Balzer (Economics Discipline Group, University of Technology Sydney); Antonio Rosato (Economics Discipline Group, University of Technology Sydney)
    Abstract: We analyze the behavior of expectations-based loss-averse bidders in frist-price and second-price common-value auctions. Highlighting the distinction between the uncertainty bidders face over whether they win the auction (extensive risk) and that over the value of the prize conditional on winning (intensive risk), we show that loss-averse bidders react differently to these different kinds of risk. In particular, the intensive risk pushes bidders to behave less aggressively in a common-value environment compared to one with private values. Yet, despite this "precautionary biddinging" effect, in equilibrium bidders can be exposed to the "winner's curse". We consider two alternative specifcations for how bidders assess outcomes as either gains or losses. Under narrow bracketing, bidders experience gains and losses separately over whether they receive the prize and how much they pay. Under broad bracketing, instead, bidders assess gains and losses over their net surplus. With narrow bracketing, first-price auctions expose bidders to less intensive risk and yield a higher expected revenue than second-price auctions, while the opposite result might hold with broad bracketing.
    Keywords: Reference-Dependent Preferences; Loss Aversion; Common-Value Auctions; Winner?s Curse
    JEL: D03 D44 D81 D82
    Date: 2018–10–18
  19. By: Swapnil Sharma (Indira Gandhi Institute of Development Research)
    Abstract: Two sided markets involve two groups of agents who interact via "platforms". This paper analyses competition in a two sided market with congestion. The existing literature's on pricing mechanisms of two-sided markets has concluded that pricing mechanism depends on the following three factors: relative size of cross group externalities, fixed price or per transaction charge by platform, and single homing or multiple homing of agents. This paper extends the analysis by including the effect of congestion on pricing mechanisms in a two sided market. It concludes that in the case of single homing of agents, profits of the platform increase due to congestion if the agents have a low tolerance level, whereas in the case of multi homing, profits of the platform increase due to congestion if the agents have a high tolerance level.
    Keywords: Network externalities, Congestion
    JEL: L10 L11 L14 D43
    Date: 2018–11
  20. By: Campbell, Jeffrey R. (Federal Reserve Bank of Chicago); Weber, Jacob P. (University of California at Berkely)
    Abstract: New Keynesian economies with active interest rate rules gain equilibrium determinacy from the central bank’s incredible off-equilibrium-path promises (Cochrane, 2011). We suppose instead that the central bank sets interest rate paths and occasionally has the discretion to change them. Private agents taking future central bank actions and their own best responses to them as given reduces the scope for self-fulfilling prophecies. With empirically-reasonable frequencies of central-bank reoptimization, the monetary-policy game has a unique Markov-perfect equilibrium wherein forward guidance influences current outcomes without displaying a forward-guidance puzzle.
    Keywords: Keynesian economics; Markov processes; Money policy; Open Market Operations;
    JEL: E12 E52
    Date: 2018–09–07

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