nep-gth New Economics Papers
on Game Theory
Issue of 2019‒03‒25
24 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Coalition Formation in Legislative Bargaining By Marco Battaglini
  2. Cooperative games with externalities and probabilistic coalitional beliefs By Stamatopoulos, Giorgos
  3. The Pizza Night Game: Efficiency, Conflict and Inequality in Tacit Bargaining Games with Focal Points By Andrea Isoni; Robert Sugden; Jiwei Zheng
  4. Focality is Intuitive - Experimental Evidence on the Effects of Time Pressure in Coordination Games By Anders Poulsen; Axel Sonntag
  5. The Procedural Egalitarian Solution and Egalitarian Stable Games By Dietzenbacher, Bas
  6. Student-Project-Resource Matching-Allocation Problems: Game Theoretic Analysis By Yamaguchi, Tomoaki; Yahiro, Kentaro; Yokoo, Makoto
  7. Unintended consequences: The snowball effect of energy communities By Ibrahim Abada; Andreas Ehrenmann; Xavier Lambin
  8. Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets – Part II: Solution Algorithm By M. Sarfati; M.R. Hesamzadeh; P. Holmberg
  9. Voting on the Threat of Exclusion in a Public Goods Experiment By Astrid Dannenberg; Corina Haita-Falah; Sonja Zitzelsberger
  10. To What Do People Contribute? Ongoing Operations vs. Sustainable Supplies By Arbel, Yuval; Bar-El, Ronen; Schwarz, Mordechai E.; Tobol, Yossi
  11. Nash Equilibrium in Tax and Public Investment Competition By Sharma, Ajay; Pal, Rupayan
  12. Communication as Gift-Exchange By Mark T. Le Quement; Amrish Patel
  13. Strategic Gaze: An Interactive Eye-Tracking Study By Jan Hausfeld; Konstantin Hesler; Susanne Goldlücke
  14. Efficient Investments in the Implementation Problem By Kentaro Tomoeda
  15. Increase-Decrease Game under Imperfect Competition in Two-stage Zonal Power Markets – Part I: Concept Analysis By M. Sarfati; M.R. Hesamzadeh; P. Holmberg
  16. Endogenous credit constraints: the role of informational non-uniqueness By Gerhard Sorger
  17. Non-Bayesian Social Learning and the Spread of Misinformation in Networks By Sebastiano Della Lena
  18. Risk trading in capacity equilibrium models By Gauthier de Maere d'Aertrycke; Andreas Ehrenmann; Daniel Ralph; Yves Smeers
  19. Market microstructure, information aggregation and equilibrium uniqueness in a global game By Edouard Challe; Edouard Chrétien
  20. Data Driven Regulation: Theory and Application to Missing Bids By Sylvain Chassang; Kei Kawai; Jun Nakabayashi; Juan M. Ortner
  21. Partial Norms By Giovanna d’Adda; Martin Dufwenberg; Francesco Passarelli; Guido Tabellini
  22. Lucky Numbers in Simple Games By Irenaeus Wolff
  23. Laboratory Federalism with Public Funds Sharing By Ana B.Ania; Andreas Wagener
  24. Uncertainty and Risk-aversion in a Dynamic Oligopoly with Sticky Prices By Edilio Valentini; Paolo Vitale

  1. By: Marco Battaglini
    Abstract: We propose a new model of legislative bargaining in which coalitions have different values, reflecting the fact that the policies they can pursue are constrained by the identity of the coalition members. In the model, a formateur picks a coalition and negotiates for the allocation of the surplus it is expected to generate. The formateur is free to change coalitions to seek better deals with other coalitions, but she may lose her status if bargaining breaks down, in which case a new formateur is chosen. We show that as the delay between offers goes to zero, the equilibrium allocation converges to a generalized version of a Nash Bargaining Solution in which–in contrast to the standard solution–the coalition is endogenous and determined by the relative coalitional values. A form of the hold-up problem specific to these bargaining games may lead to significant inefficiencies in the selection of the equilibrium coalition. We use the equilibrium characterization of the distortions to study the role of the head of state in avoiding (or containing) distortions. We also show that the model helps rationalizing well known empirical facts that are in conflict with the predictions of standard non-cooperative models of bargaining: the absence of significant (or even positive) premia in ministerial allocations for formateurs and their parties; the occurrence of supermajorities; and delays in reaching agreements.
    JEL: D72 D78
    Date: 2019–03
  2. By: Stamatopoulos, Giorgos
    Abstract: We revisit cooperative games with externalities, i.e. cooperative games where the payoff of a coalition depends on the partition of the entire set of players. We define the worth of a coalition assuming that its members have probabilistic beliefs over the coalitional behavior of the outsiders, i.e., they assign various probability distributions on the set of partitions that the outsiders can form. We apply this framework to symmetric aggregative games and derive conditions on coalitional beliefs that guarantee the non-emptiness of the core of the induced cooperative games.
    Keywords: cooperative game; aggregative game; probabilistic belief; core
    JEL: C7 C71
    Date: 2018
  3. By: Andrea Isoni (Warwick Business School); Robert Sugden (University of East Anglia); Jiwei Zheng (University of East Anglia)
    Abstract: We report the results of a new tacit bargaining experiment that provides two key insights on the effects of payoff inequality on coordination and cooperation towards mutually beneficial outcomes. The experiment features the novel Pizza Night game, which can disentangle the effects of payoff inequality from those of conflict of interest. When coordination relies on focal points based on labelling properties, payoff inequality does not interfere with the successful use of those properties. When coordination results in mutual benefit, payoff inequality is not an obstacle to the realisation of efficiency. Conflict of interest is the main barrier to successful coordination.
    Keywords: Pizza Night game, tacit bargaining, conflict of interest, payoff inequality, focal points
    JEL: C72 C78 C91
    Date: 2018–05
  4. By: Anders Poulsen (University of East Anglia); Axel Sonntag (University of Vienna)
    Abstract: We experimentally examine the effects of varying time pressure in a coordination game with a label salient focal equilibrium. We consider both a pure coordination game (payoff symmetry) and a battle of the sexes game with conflict of interest (payoff asymmetry). In symmetric games, there are no effects of time pressure, since the label-salient outcome is highly focal regardless of how much time subjects have to decide. In asymmetric games, less time results in greater focality of the the label-salient action, and it becomes significantly more likely that any coordination is on the focal outcome.
    Keywords: Coordination game; focal point; time pressure; response times; social heuristics hypothesis; experiment.
    JEL: C70 C72 C92
    Date: 2019–01
  5. By: Dietzenbacher, Bas (Tilburg University, Center For Economic Research)
    Abstract: This paper studies the procedural egalitarian solution on the class of egalitarian stable games. By deriving several axiomatic characterizations involving consistency and monotonicity, we show that the procedural egalitarian solution satisfies various desirable properties and unites many egalitarian concepts defined in the literature. Moreover, we illustrate the computational implications of these characterizations and relate the class of egalitarian stable games to other well-known classes.
    Keywords: egalitarianism; transferable utility games; procedural egalitarian solution; egalitarian stability
    JEL: C71
    Date: 2019
  6. By: Yamaguchi, Tomoaki; Yahiro, Kentaro; Yokoo, Makoto
    Abstract: In this work, we consider a three sided student-project-resource matching-allocation problem, in which students have preferences on projects, and projects on students. While students are many-to-one matched to projects, indivisible resources are many-to-one allocated to projects whose capacities are thus endogenously determined by the sum of resources allocated to them. Traditionally, this problem is divided into two separate problems: (1) resources are allocated to projects based on some expectations (resource allocation problem), and (2) students are matched to projects based on the capacities determined in the previous problem (matching problem). Although both problems are well-understood, unless the expectations used in the first problem are correct, we obtain a suboptimal outcome. Thus, it is desirable to solve this problem as a whole without dividing it in two. In this paper, we first show that a stable (i.e., fair and nonwasteful) matching does not exist in general (nonwastefulness is a criterion related to efficiency). Then, we show that no strategyproof mechanism satisfies fairness and very weak efficiency requirements. Given this impossibility result, we develop a new strategyproof mechanism that strikes a good balance between fairness and efficiency, which is assessed by experiments.
    Keywords: two-sided matching, mechanism design, resource allocation, strategyproof
    JEL: C78 D61 D63
    Date: 2019–02–14
  7. By: Ibrahim Abada (ENGIE); Andreas Ehrenmann (ENGIE, EPRG); Xavier Lambin (Toulouse School of Economics)
    Keywords: Energy communities, Cooperative game theory, Non-cooperative game theory, Decentralized power production, Consumer participation, Micro-grids
    JEL: C61 C71 C72 D61 O13 Q42 Q49
    Date: 2018–04
  8. By: M. Sarfati (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden -Research Institute of Industrial Economics (IFN), Sweden); M.R. Hesamzadeh (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden.); P. Holmberg (Research Institute of Industrial Economics (IFN), Sweden - Energy Policy Research Group (EPRG), University of Cambridge, UK - Program on Energy and Sustainable Development (PESD), Stanford University, CA, USA)
    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
  9. By: Astrid Dannenberg (University of Kassel); Corina Haita-Falah (University of Kassel); Sonja Zitzelsberger (University of Kassel)
    Abstract: Ostracism is practiced by virtually all societies around the world as a means of enforcing cooperation and excluding members who show anti-social behaviors or attitudes. In this paper, we use a public goods experiment to study whether groups choose to implement an institution that allows for the exclusion of members. We distinguish between a costless exclusion institution and a costly exclusion institution that, if chosen, reduces the endowment of all players. We also provide a comparison with an exclusion institution that is exogenously imposed upon groups. A significant share of the experimental groups choose the exclusion institution, even when it comes at a cost, and the support for the institution increases over time. Average contributions to the public good are significantly higher when the exclusion option is available, not only because low contributors are excluded but also because high contributors sustain a higher cooperation level under the exclusion institution. Subjects who vote in favor of the exclusion institution contribute more than those who vote against it, but only when the institution is implemented. These results are largely inconsistent with standard economic theory but can be better explained by assuming heterogeneous groups in which some players have selfish and others have social preferences.
    Keywords: public goods experiment; cooperation; ostracism; institutional choice; social preferences
    JEL: C72 C91 C92 D02 D71 H41
    Date: 2019
  10. By: Arbel, Yuval (School of Business, Carmel Academic Center); Bar-El, Ronen (Open University of Israel); Schwarz, Mordechai E. (Open University of Israel); Tobol, Yossi (Jerusalem College of Technology (JTC))
    Abstract: We study how the objective of the contributions affects the willingness to contribute to real-life public goods. We conducted three treatments of a fundraising experiment among religious Jewish students in which the contributions were assigned to finance sustainable supplies and the ongoing operations of their campus synagogue. In each treatment, we informed the subject of the different allocation of their contributions between funding sustainable supplies and ongoing operations. The results show that contributions increase significantly with the share of contributions assigned to the procurement of sustainable supplies. We use the results to derive practical implications for the design of fundraising for public goods.
    Keywords: experiment, Nash equilibrium, public goods, voluntary provision
    JEL: C73 C91 C92 H41
    Date: 2019–02
  11. By: Sharma, Ajay; Pal, Rupayan
    Abstract: We analyze Nash equilibrium in fiscal competition with tax and public investment between symmetric regions. We show that given the opposite strategic nature of tax (strategic complement) and public investment (strategic substitute), there is possibility of multiple equilibria. We find that if strategic substitute effect dominates strategic complement effect, then both regions have first mover advantage in a timing game and simultaneous move Nash equilibrium (early, early) emerges; otherwise sequential move equilibria-(early, late) and (late, early) emerges. Also, sequential move Nash equilibria are Pareto improving than simultaneous move outcome. Lastly, race-to-the-bottom in taxes is restricted in sequential move equilibria.
    Keywords: Capital taxation; Public investment; Tax competition; Joint strategic substitutes; Joint strategic complements
    JEL: F21 H25 H41 H73 R5
    Date: 2019–03–12
  12. By: Mark T. Le Quement (University of East Anglia); Amrish Patel (University of East Anglia)
    Abstract: We study psychological games of cheap talk communication involving players who have misaligned material interests and reciprocity preferences. We find that full and efficient information transmission is often impossible if reciprocity concerns are too high. Furthermore, higher material preference misalignment may facilitate the achievement of full information transmission. A key driver of our results is that truth-telling is not per se a kind action by the sender. We contrast discrete and continuous environments, alternative conceptions of reciprocity preferences and consider one-sided reciprocity models.
    Keywords: Cheap talk, Gift-Exchange, Incomplete Information, Psychological Game, Reciprocity.
    JEL: D81 D83 D91
    Date: 2018–01–30
  13. By: Jan Hausfeld; Konstantin Hesler; Susanne Goldlücke
    Abstract: We present an interactive eye-tracking study that explores the strategic use of gaze. We analyze gaze behavior in an experiment with four simple games. The game can either be a competitive (hide and seek) game in which players want to be unpredictable, or a game of common interest in which players want to be predictable. Gaze is either transmitted in real time to another subject, or it is not transmitted and therefore non-strategic. We find that subjects are able to interpret non-strategic gaze, obtaining substantially higher payoffs than subjects who did not see gaze patterns. If gaze is transmitted in real time, eye movements become more informative in the common interest games and players predominantly succeed to coordinate on efficient outcomes. In contrast, eye movements become less informative in the competitive game.
    Keywords: Eye-tracking, focal points, signaling, hide and seek
    Date: 2018
  14. By: Kentaro Tomoeda (Economics Discipline Group, University of Technology Sydney)
    Abstract: This paper identifies a condition for an efficient social choice rule to be fully implementable when we take into account investment efficiency. To do so, we extend the standard implementation problem to include endogenous ex ante and ex post investments. In our problem, the social planner aims to achieve efficiency in every equilibrium of a dynamic game in which agents strategically make investments before and after playing the mechanism. Our main theorem shows that a novel condition commitment-proofness is sufficient and necessary for an efficient social choice rule to be implementable in subgame-perfect equilibria. The availability of ex post investments is crucial in our model: there is no social choice rule that is efficient and implementable in subgame-perfect equilibria without ex post investments. We also show that our positive result continues to hold in the incomplete information setting.
    Keywords: investment efficiency; full implementation; mechanism design; ex ante investment
    JEL: D44 D82 C78
    Date: 2018–12–18
  15. By: M. Sarfati (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden - Research Institute of Industrial Economics (IFN), Sweden); M.R. Hesamzadeh (Electricity Market Research Group (EMReG), KTH Royal Institute of Technology, Sweden.); P. Holmberg (Research Institute of Industrial Economics (IFN), Sweden -Energy Policy Research Group (EPRG), University of Cambridge, UK -Program on Energy and Sustainable Development (PESD), Stanford University, CA, USA)
    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
  16. By: Gerhard Sorger
    Abstract: We point out that the equilibrium deinition applied by Miao and Wang [8] in their model of stock price bubbles involves an implicit assumption about the for-mulation of an endogenous credit constraint. By dropping this assumption, one can construct ininitely many additional equilibria for the Miao-Wang economy, all of which exhibit stock price bubbles. The underlying reason for this result is informational non-uniqueness, a phenomenon known from the literature on dynamic games. Neither the original equilibria discussed by Miao and Wang [8] nor the additional ones which exist due to informational non-uniqueness are Markov-perfect. For this reason we propose a recursive equilibrium deinition for the Miao-Wang economy and show how it can be used to construct Markov-perfect equilibria with stock price bubbles.
    JEL: E22 G10
    Date: 2019–02
  17. By: Sebastiano Della Lena (Department of Economics, University Of Venice Cà Foscari)
    Abstract: People are exposed to a constant flow of information about economic, social and political phenomena; nevertheless, misinformation is ubiquitous in the society. This paper studies the spread of misinformation in a social environment where agents receive new information each period and update their opinions taking into account both their experience and neighborhood's ones. I consider two types of misinformation: permanent and temporary. Permanent misinformation is modeled with the presence of stubborn agents in the network and produces long-run effects on the agents learning process. The distortion induced by stubborn agents in social learning depends on the “updating centrality”, a novel centrality measure that identifies the key agents of a social learning process, and generalizes the Katz-Bonacich measure. Conversely, temporary misinformation, represented by shocks of rumors or fake news, has only short-run effects on the opinion dynamics. Results rely on spectral graph theory and show that the consensus among agents is not always a sign of successful learning. In particular, the consensus time is increasing with respect to the “bottleneckedness” of the underlying network, while the learning time is decreasing with respect to agents' reliance on their private signals.
    Keywords: Opinion Dynamics in Networks, Non-Bayesian Social Learning, Stubborn Agents, Speed of Convergence
    JEL: D83 D85 D72 Z10
    Date: 2019
  18. By: Gauthier de Maere d'Aertrycke (CEEME - Engie); Andreas Ehrenmann (CEEME - Engie); Daniel Ralph (Cambridge Judge Business School, University of Cambridge); Yves Smeers (Center for Operations Research and Econometrics, Universit´e catholique de Louvain)
    Keywords: Capacity expansion, spot market, perfect or Cournot competition, risk aversion, risk trading, complete or incomplete risk market, coherent risk measure, risky capacity equilibria
    JEL: C62 C72 L94 C73 G32
    Date: 2018–01
  19. By: Edouard Challe (Sciences Po); Edouard Chrétien
    Abstract: Speculators contemplating an attack (e.g., on a currency peg) must guess the beliefs of other speculators, which they can do by looking at the stock market. As shown in earlier work, this information-gathering process may be destabilising by creating multiple equilibria. This paper studies the role played by the microstructure of the asset market in the emergence of multiple equilibria driven by information aggregation. To do so, we study the outcome of a two-stage global game wherein an asset price determined at the trading stage of the game provides an endogenous public signal about the fundamental that affects traders’ decision to attack in the coordination stage of the game. In the trading stage, placing a full demand schedule (i.e., a continuum of limit orders) is costly, but traders may use riskier (and cheaper) market orders, i.e., order to sell or buy a fixed quantity of assets unconditional on the execution price. Price execution risk reduces traders aggressiveness and hence slows down information aggregation, which ultimately makes multiple equilibria in the coordination stage less likely. In this sense, microstructure frictions that lead to greater individual exposure (to price execution risk) may reduce aggregate uncertainty (by pinning down a unique equilibrium outcome).
    Keywords: Market microstructure; Information aggregation; Global game
    JEL: C72 D82 G14
    Date: 2018–02
  20. By: Sylvain Chassang; Kei Kawai; Jun Nakabayashi; Juan M. Ortner
    Abstract: We document a novel bidding pattern observed in procurement auctions from Japan: winning bids tend to be isolated. There is a missing mass of close losing bids. This pattern is suspicious in the following sense: it is inconsistent with competitive behavior under arbitrary information structures. Building on this observation, we develop a theory of data-driven regulation based on “safe tests,” i.e. tests that are passed with probability one by competitive bidders, but need not be passed by non-competitive ones. We provide a general class of safe tests exploiting weak equilibrium conditions, and show that such tests reduce the set of equilibrium strategies that cartels can use to sustain collusion. We provide an empirical exploration of various safe tests in our data, as well as discuss collusive rationales for missing bids.
    JEL: C72 D44 H57 L51
    Date: 2019–03
  21. By: Giovanna d’Adda; Martin Dufwenberg; Francesco Passarelli; Guido Tabellini
    Abstract: We consider an expanded notion of social norms that render them belief-dependent and partial, formulate a series of related testable predictions, and design an experiment based on a variant of the dictator game that tests for empirical relevance. Main results: Normative beliefs influence generosity, as predicted. Degree of partiality leads to more dispersion in giving behavior, as predicted. Keywords: Social norms, partial norms, normative expectations, consensus, experiment. JEL codes: C91, D91
    Date: 2019
  22. By: Irenaeus Wolff
    Abstract: Simple game structures like discoordination, hide-and-seek, or Colonel-Blotto games have been used to model a wide range of economically relevant situations. Yet, Nash-equilibrium and its alternatives notoriously fail to explain observed behaviour in these games when alternatives carry descriptive labels. This paper shows that throughout the different games, behavioural patterns resemble `lucky-number' patterns: the choice patterns in related lotteries. Starting from this observation, I adjust standard models to account for the data. The adjusted models outperform the existing models, but they do not outperform a simple benchmark model. In the benchmark model, agents pick according to the `lucky numbers' or, under certain circumstances, choose any of the other options with equal probabilities. Interestingly, this benchmark model predicts two additional general regularities that bear out on the existing data and new data from two additional games: hide-and-seek seekers rely on `lucky numbers' more heavily than any other player role; and the stronger the `lucky-number' pattern deviates from a uniform distribution, the more likely it is observed also in the game data.
    Keywords: Bounded Rationality, Level-k, Salience, Heuristic, Hide and Seek, Discoordination, Rock-Paper-Scissors, Colonel Blotto, Representativeness
    Date: 2019
  23. By: Ana B.Ania; Andreas Wagener
    Abstract: The theory of laboratory federalism hypothesizes that, in a decentralized multi-jurisdictional system, policies follow an evolutionary learning process with innova-tion and imitation. This paper studies the role of public funds sharing in such a setting. As a guiding framework we consider a model of decentralized, rich-to-poor redistribution with labor mobility. Uncorrected learning dynamics here lead to a drastic erosion of the welfare state. Suitably designed public funds sharing can correct this failure and may even restore e?ciency. Surprisingly, the necessary properties of the sharing scheme for e?ciency in the learning model are the same as those that make decentralized Nash play e?cient (and vice versa).Public funds sharing, thus, is a powerful corrective device in ?scally decentralizedsettings for a variety of behavioral modes of government interaction.
    JEL: C73 H75 H77
    Date: 2019–02
  24. By: Edilio Valentini (Department of Economics, University of Chieti-Pescara); Paolo Vitale (Department of Economics, University of Chieti-Pescara)
    Abstract: In this paper we present a dynamic discrete-time model that allows to investigate the impact of risk-aversion in an oligopoly characterized by a homogeneous non-storable good, sticky prices and uncertainty. Our model nests the classical dynamic oligopoly model with sticky prices by Fershtman and Kamien (Fershtman and Kamien, 1987), which can be viewed as the continuous-time limit of our model with no uncertainty and no risk-aversion. Focusing on the continuous-time limit of the infinite horizon formulation we show that the optimal production strategy and the consequent equilibrium price are, respectively, directly and inversely related to the degrees of uncertainty and risk-aversion. However, the effect of uncertainty and risk-aversion crucially depends on price stickiness since, when prices can adjust instantaneously, the steady state equilibrium in our model with uncertainty and risk aversion collapses to Fershtman and Kamien’s analogue.
    Keywords: Uncertainty, Risk-aversion, Dynamic Oligopoly
    JEL: D8 D81 L13
    Date: 2019–03

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