nep-gth New Economics Papers
on Game Theory
Issue of 2019‒08‒12
thirteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Multiple behavioral rules in Cournot oligopolies By Carlos Alós-Ferrer; Alexander Ritschel
  2. An Application of Shapley Value Cost Allocation to Liquidity Savings Mechanisms By Rod Garratt
  3. Competition with Indivisibilities and Few Traders By Cesar Martinelli; Jianxin Wang; Weiwei Zheng
  4. Matching in the Kolm Triangle: Interiority and Participation Constraints of Matching Equilibria By Wolfgang Buchholz; Richard Cornes; Dirk Rübbelke
  5. Voluntary Disclosure of Information and Cooperation in Simultaneous-Move Economic Interactions By Kenju Kamei
  6. Strategic ignorance in repeated prisoners’ dilemma experiments and its effects on the dynamics of voluntary cooperation By Lisa Bruttel; Simon Felgendreher; Werner Güth; Ralph Hertwig
  7. Changing Preferences: An Experiment and Estimation of Market-Incentive E§ects on Altruism By Undral Byambadalai; Ching-to Albert Ma; Daniel Wiesen
  8. Submodular Mean Field Games. Existence and Approximation of Solutions By Dianetti, Jodi; Ferrari, Giorgio; Fischer, Markus; Nendel, Max
  9. Trust and reciprocity in youth labor markets. An experimental approach to analyzing the impact of labour market experiences on young people By Niall O'Higgins; Marco Stimolo
  10. The Effect of Social Information in the Dictator Game with a Taking Option By Tanya O’Garra; Valerio Capraro; Praveen Kujal
  11. Patent Protection and Threat of Litigation in Oligopoly By Carlo Capuano; Iacopo Grassi; Riccardo Martina
  12. Optimal auctions for networked markets with externalities By Benjamin Heymann; Alejandro Jofr\'e
  13. Resolution of the St. Petersburg paradox using Von Mises axiom of randomness By Andrea Berdondini

  1. By: Carlos Alós-Ferrer; Alexander Ritschel
    Abstract: We show that economic decisions in strategic settings are co-determined by multiple behavioral rules. A simple model of intra-individual behavioral heterogeneity predicts testable differences depending on whether rules share a common prescription (alignment) or not (conflict), a classification which is ex ante observable. The predictions include non-trivial response time interactions reflecting the nature of the underlying processes, hence the model is not an as if explanation. In a laboratory experiment and two replications on Cournot oligopolies, we find direct evidence showing that decisions arise from the interaction between a deliberative myopic best reply rule and a more intuitive imitative rule.
    Keywords: Multiple behavioral rules, Cournot oligopoly, best reply, imitation, reinforcement
    JEL: C72 C92 D03
    Date: 2019–07
  2. By: Rod Garratt
    Abstract: Liquidity demands in real-time gross settlement payment systems can be enormous. To reduce the liquidity requirement, central banks around the world have implemented liquidity savings mechanisms (LSMs). The most effective LSMs are those that economize on liquidity needs by matching offsetting payments that have been submitted to a central queue and settling these payments using only the liquidity needed to cover the net obligations. Maximizing the value of payments settled in a queue given available liquidity is computationally difficult. Existing centralized queuing systems do not always meet this objective. Even when they do, the resulting outcome does not necessarily maximize system welfare. This paper seeks to improve upon existing centralized netting queues by making two fundamental changes. First, instead of making decisions on how much liquidity to provide to the queue before netting arrangements are determined, banks receive take-it-or-leave-it offers that determine which of their payments will be settled as well as their share of the liquidity cost. Second, rather than attempting to maximize the value or volume of payments settled in the queue, I propose using information regarding the instantaneous benefits and costs of participants to define a welfare measure for any set of netted payments. The full benefits of these two changes are realized through an application of the Shapley value cost allocation method, which ensures welfare maximizing netting proposals are always accepted.
    Keywords: Payment clearing and settlement systems
    JEL: C72 E58
    Date: 2019–07
  3. By: Cesar Martinelli (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Jianxin Wang (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Weiwei Zheng (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: We study minimal conditions for competitive behavior with few agents. We adapt the strategic market game of Dubey (1982), Simon (1984) and Benassy (1986) to an indivisible good environment. We show that all Nash equilibrium outcomes with active trading are competitive if and only if there are at least two intramarginal traders in each side of the market. Unlike previous formulations, this condition can be verified directly by checking the set of competitive equilibria. In laboratory experiments, the condition we provide turns out to be enough to induce competitive results. Moreover, the performance of a sealed-bid auction following the rules of the strategic market game approaches that of its dynamic counterpart, the double auction, over time.
    Date: 2019–07
  4. By: Wolfgang Buchholz (University of Regensburg and CESifo Munich); Richard Cornes (Australian National University); Dirk Rübbelke (Technische Universität Bergakademie Freiberg)
    Abstract: In this paper we show how the Kolm triangle method, which is a standard tool for visualizing allocations in a public good economy, can also be used to provide a diagrammatical exposition of matching mechanisms and their effects on public good supply and welfare. In particular, we describe, on the one hand, for which income distributions interior matching equilibria result and, on the other hand, for which income distributions the agents voluntarily participate in a matching mechanism. As a novel result, we especially show that the “participation zone” is larger than the “interiority zone”.
    Keywords: Public Goods, Matching, Pareto Optimality, Kolm Triangle, Aggregative Games
    JEL: C78 H41
    Date: 2019–07
  5. By: Kenju Kamei (Durham University Business School)
    Abstract: This paper studies individuals’ voluntary disclosure of past behaviors and its effects in simultaneous-move dilemma interactions. Using a laboratory experiment with a finitely repeated two-player public goods game, I found that voluntary information disclosure strengthens cooperation under certain conditions, although a non-negligible fraction of individuals do not disclose information about the past and proceed to behave opportunistically. On closer inspection, the data revealed that the material incentives of disclosure acts differ according to the matching protocol. Specifically, disclosers receive higher payoffs than non-disclosers if the disclosers are assured to be matched with like-minded disclosers; conversely, disclosers are vulnerable to exploitation by others under random matching. A direct consequence of the presence of non-disclosers (and the required payment in costly disclosure treatments) is that individuals can achieve higher efficiency where disclosure is mandatory rather than voluntary. This result suggests that the elimination of an option to hide past behaviors helps enhance economic efficiency if individuals’ opportunistic behaviors are liable to precipitate a collapse in the community norms.
    Keywords: experiment, information disclosure, cooperation, dilemma, repeated games, reputation
    JEL: C92 D74 D83
    Date: 2019–04
  6. By: Lisa Bruttel (University of Potsdam); Simon Felgendreher (University of Gothenburg); Werner Güth (LUISS Università Guido Carli); Ralph Hertwig (Max Planck Institute for Human Development)
    Abstract: Being ignorant of key aspects of a strategic interaction can represent an advantage rather than a handicap. We study one particular context in which ignorance can be beneficial: iterated strategic interactions in which voluntary cooperation may be sustained into the final round if players voluntarily forego knowledge about the time horizon. We experimentally examine this option to remain ignorant about the time horizon in a finitely repeated two-person prisoners’ dilemma game. We confirm that pairs without horizon knowledge avoid the drop in cooperation that otherwise occurs toward the end of the game. However, this effect is superposed by cooperation declining more rapidly in pairs without horizon knowledge during the middle phase of the game, especially if players do not know that the other player also wanted to remain ignorant of the time horizon.
    Keywords: cooperation, experiment, prisoners' dilemma, strategic ignorance
    JEL: C91 D83 D89
    Date: 2019–08
  7. By: Undral Byambadalai (Boston University); Ching-to Albert Ma (Boston University); Daniel Wiesen (University of Cologne)
    Abstract: This paper studies how altruistic preferences are changed by markets and incentives. We conduct a laboratory experiment in a within-subject design. Subjects are asked to choose health care qualities for hypothetical patients in monopoly, duopoly, and quadropoly. Prices, costs, and patient benefits are experimental incentive parameters. In monopoly, subjects choose quality to tradeoff between profits and altruistic patient benefits. In duopoly and quadropoly, we model subjects playing a simultaneous-move game. Each subject is uncertain about an opponentÌ s altruism, and competes for patients by choosing qualities. Bayes-Nash equilibria describe subjects' quality decisions as functions of altruism. Using a nonparametric method, we estimate the population altruism distributions from Bayes-Nash equilibrium qualities in di§erent markets and incentive conÖgurations. Markets tend to reduce altruism, although duopoly and quadropoly equilibrium qualities are much higher than those in monopoly. Although markets crowd out altruism, the disciplinary powers of market competition are stronger. Counterfactuals confirm markets change preferences.
    Keywords: preferences, altruism, markets, incentives
    JEL: C14 C72
    Date: 2019–07
  8. By: Dianetti, Jodi (Center for Mathematical Economics, Bielefeld University); Ferrari, Giorgio (Center for Mathematical Economics, Bielefeld University); Fischer, Markus (Center for Mathematical Economics, Bielefeld University); Nendel, Max (Center for Mathematical Economics, Bielefeld University)
    Abstract: We study mean field games with scalar Itô-type dynamics and costs that are submodular with respect to a suitable order relation on the state and measure space. The submodularity assumption has a number of interesting consequences. Firstly, it allows us to prove existence of solutions via an application of Tarski's fixed point theorem, covering cases with discontinuous dependence on the measure variable. Secondly, it ensures that the set of solutions enjoys a lattice structure: in particular, there exist a minimal and a maximal solution. Thirdly, it guarantees that those two solutions can be obtained through a simple learning procedure based on the iterations of the best-response-map. The mean field game is first defined over ordinary stochastic controls, then extended to relaxed controls. Our approach allows also to treat a class of submodular mean field games with common noise in which the representative player at equilibrium interacts with the (conditional) mean of its state's distribution.
    Keywords: Mean field games, submodular cost function, complete lattice, first order stochastic dominance, Tarski's fixed point theorem.
    Date: 2019–07–26
  9. By: Niall O'Higgins; Marco Stimolo
    Abstract: In this experiment, we study whether individuals' labour market state (i.e. employed, student or NEET) affect their trusting and trustworthy behavior. To identify both the effect of labour market state and the effect of information on others' labour market state over one's behavior, we implement an experiment with two one-shot trust games with random and anonymous matching: in the first game, subjects receive no information on the counterpart; in the second one, the labour market state of both players is common knowledge. We find that, amongst the different sub-categories of NEETs, the status of unemployed has a markedly negative effect on trust and trustworthiness. Furthermore, precariousness in the labour market results to be as damaging as unemployment for trust and trustworthiness.
    Keywords: Trust game; Reciprocity; Youth labor market.
    Date: 2019–07–27
  10. By: Tanya O’Garra (Middlesex University London); Valerio Capraro (Middlesex University London); Praveen Kujal (Middlesex University London and Economic Science Institute, Chapman University)
    Abstract: We experimentally study how redistribution choices are affected by positive and negative information regarding the behaviour of a previous participant in a dictator game with a taking option. We use the strategy method to identify behavioural ‘types’, and thus distinguish ‘conformists’ from ‘counter-conformists’, and unconditional choosers. Unconditional choosers make up the greatest proportion of types (about 80%) while only about 20% of subjects condition their responses to social information. We find that both conformity and counter-conformity are driven by a desire to be seen as moral (the ‘symbolization’ dimension of moral identity). The main difference is that, conformity is also driven by a sensitivity to what others think (‘attention to social comparison’). Unconditional giving (about 30% of players) on the other hand is mainly driven by the centrality of moral identity to the self (the ‘internalization' dimension of moral identity). Social information thus seems to mainly affect those who care about being seen to be moral. The direction of effect however depends on how sensitive one is to what others think.
    Keywords: dictator game with ‘taking’; social information; conformity; anti-conformity; heterogeneity; redistribution
    JEL: C91 C72 D31 D64 D91
    Date: 2019
  11. By: Carlo Capuano (Università di Napoli Federico II); Iacopo Grassi (Università di Napoli Federico II); Riccardo Martina (Università di Napoli Federico II and CSEF)
    Abstract: In a context of imperfect patent protection, this paper analyses the strategic use of patents from a novel perspective; patents are seen as a means available to the incumbent firm to control entry and, more importantly, to influence the post-entry market interaction process effectively, by creating the conditions that favour collusion. The level of patent protection chosen by the incumbent affects the likelihood that a potential entrant will be found guilty of patent infringement. This mechanism can operate as a punishment device that eases the conditions for collusion sustainability. Therefore, in a sense, patent protection can be regarded as an instrument allowing replication of the monopoly outcome in the context of a contestable market.
    Keywords: patents, patent portfolio, litigation, collusion, foreclosing, entry game
    JEL: D43 K21 L13
    Date: 2019–07–27
  12. By: Benjamin Heymann; Alejandro Jofr\'e
    Abstract: Motivated by the problem of market power in electricity markets, we introduced in previous works a mechanism for simplified markets of two agents with linear cost. In standard procurement auctions, the market power resulting from the quadratic transmission losses allows the producers to bid above their true values, which are their production cost. The mechanism proposed in the previous paper optimally reduces the producers' margin to the society's benefit. In this paper, we extend those results to a more general market made of a finite number of agents with piecewise linear cost functions, which makes the problem more difficult, but simultaneously more realistic. We show that the methodology works for a large class of externalities. We also provide an algorithm to solve the principal allocation problem. Our contribution provides a benchmark to assess the sub-optimality of the mechanisms used in practice.
    Date: 2019–07
  13. By: Andrea Berdondini
    Abstract: In this article we will propose a completely new point of view for solving one of the most important paradoxes concerning game theory. The solution develop shifts the focus from the result to the strategy s ability to operate in a cognitive way by exploiting useful information about the system. In order to determine from a mathematical point of view if a strategy is cognitive, we use Von Mises' axiom of randomness. Based on this axiom, the knowledge of useful information consequently generates results that cannot be reproduced randomly. Useful information in this case may be seen as a significant datum for the recipient, for their present or future decision-making process. Finally, by resolving the paradox from this new point of view, we will demonstrate that an expected gain that tends toward infinity is not always a consequence of a cognitive and non-random strategy. Therefore, this result leads us to define a hierarchy of values in decision-making, where the cognitive aspect, whose statistical consequence is a divergence from random behaviour, turns out to be more important than the expected gain.
    Date: 2019–06

This nep-gth issue is ©2019 by Sylvain Béal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.