nep-gth New Economics Papers
on Game Theory
Issue of 2019‒12‒09
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Social Norms in Networks By Ushchev, Philip; Zenou, Yves
  2. Cheap Talk Games with Two-Senders and Different Modes of Communication By Bayindir, Esra E.; Gurdal, Mehmet Y.; Ozdogan, Ayca; Saglam, Ismail
  3. The Formation of Social Groups under Status Concern By Staab, Manuel
  4. Speed of Rational Social Learning in Networks with Gaussian Information By Krishna Dasaratha; Kevin He
  5. Negotiation under the curse of knowledge By Pierrot, Thibaud
  6. Revealed Preference Analysis of Expected Utility Maximization under Prize-Probability Trade-Offs By Laurens Cherchye; Thomas Demuynck; Bram De Rock; Mikhail Freer
  7. Investigating the failure to best respond in experimental games By Despoina Alempaki; Andrew M Colman; Felix Koelle; Graham Loomes; Briony D Pulford
  8. Group cooperation against an incumbent By Guillaume Cheikbossian
  9. Duopolistic Competition On a Plane By Davit Maskharashvilia
  10. Technical Efficiency in Firm Games with Constant Returns to Scale and α-Returns to Scale By Walter Briec; Marc Dubois; Stéphane Mussard
  11. "Probabilistic Approach to Mean Field Games and Mean Field Type Control Problems with Multiple Populations" By Masaaki Fujii
  12. Some analytically solvable problems of the mean-field games theory By Sergey I. Nikulin; Olga S. Rozanova
  13. Multi-tier tax competition on Gasoline By Marie-Laure BREUILLÉ; Emmanuelle TAUGOURDEAU
  14. Double overreaction in beauty-contests with information acquisition: theory and experiment By Romain Baeriswyl; Kene My; Camille Cornand
  15. Estimating Social Preferences and Kantian Morality in Strategic Interactions By Alger, Ingela; Weibull, Jörgen W.; Van Leeuwen, Boris
  16. On the Disclosure of Promotion Value in Platforms with Learning Sellers By Yonatan Gur; Gregory Macnamara; Daniela Saban
  17. Reputation Effects in Repeated Audits, with Application to Insurance Fraud Deterrence By Reda Aboutajdine; Pierre Picard
  18. Vertically Differentiated Cournot Oligopoly : Effects of Market Expansion and Trade Liberalization on Relative Markup and Product Quality By Long, Ngo Van; Miao, Zhuang
  19. The artefact of the Natural Resources Curse By Matata Ponyo Mapon; Jean-Paul K. Tsasa

  1. By: Ushchev, Philip (HSE); Zenou, Yves (Monash University)
    Abstract: Although the linear-in-means model is the workhorse model in empirical work on peer effects, its theoretical properties are understudied. In this study, we develop a social-norm model that provides a microfoundation of the linear-in-means model and investigate its properties. We show that individual outcomes may increase, decrease, or vary non-monotonically with the taste for conformity. Equilibria are usually inefficient and, to restore the first best, the planner needs to subsidize (tax) agents whose neighbors make efforts above (below) the social norms. Thus, giving more subsidies to more central agents is not necessarily efficient. We also discuss the policy implications of our model in terms of education and crime.
    Keywords: social norms, conformism, local-average model, welfare, anti-conformism, network formation
    JEL: D85 J15 Z13
    Date: 2019–11
  2. By: Bayindir, Esra E.; Gurdal, Mehmet Y.; Ozdogan, Ayca; Saglam, Ismail
    Abstract: We present a theoretical and experimental study of three Cheap Talk games, each having two senders and one receiver. The communication of senders is simultaneous in the first game, sequential in the second game and determined by the receiver in the third game (the Choice Game). We find that the overcommunication phenomenon observed in similar settings with only one sender becomes insignificant in our two-sender model regardless of the mode of communication. Despite similar theoretical predictions for these games, we observe systematic differences in experiments. In particular, while non-conflicting messages are observed less frequently under sequential communication due to the tendency of the second sender to revert the message of the first sender, the frequency of the second sender being truthful when the first sender lies is considerably higher in the Sequential Game in comparison to the truth-telling level in the Simultaneous Game. Moreover, in the Choice Game receiver prefers simultaneous mode of communication slightly more often than the sequential one. We explain the observed behavior of the players, estimating a logit quantal response equilibrium model and additionally running some logistic regressions. We find that the mode of communication is critical in design problems where a second opinion is available.
    Keywords: Strategic information transmission; truth-telling; trust; sender-receiver game.
    JEL: C72 C90 D83
    Date: 2019–11–27
  3. By: Staab, Manuel
    Abstract: I study the interaction of two forces in the formation of social groups: the preference for high quality peers and the desire for status among one's peers. I present a characterization of fundamental properties of equilibrium group structures in a perfect information, simultaneous move game when group membership is priced uniformly and cannot directly depend on type. While equilibrium groups generally exhibit some form of assortative matching between individual type and peer quality, the presence of status concern reduces the potential degree of sorting and acts as a force for greater homogeneity across groups. I analyse the effect of status concern for the provision of groups under different market structures and particularly focus on the implications for segregation and social exclusion. I find that status concern reduces the potential for and benefit from segregation - both for a social planner and a monopolist - but the interaction of preference for rank and status can make the exclusion of some agents a second-best outcome.
    Keywords: peer effects, status concern, public goods, network effects
    JEL: D62 D71 H41 L10
    Date: 2019–11
  4. By: Krishna Dasaratha; Kevin He
    Abstract: We consider a sequential social-learning environment with rational agents and Gaussian private signals, focusing on how the observation network affects the speed of learning. Agents learn about a binary state and take turns choosing actions based on own signals and observations of network neighbors' behavior. The observation network generally presents an obstruction to the efficient rate of signal aggregation, as agents compromise between incorporating the signals of the observed neighbors and not over-counting the signals of the unobserved early movers. We show that on any network, equilibrium actions are a log-linear function of observations and each agent's accuracy admits a signal-counting interpretation. We then consider a network structure where agents move in generations and observe all members of the previous generation. The additional information aggregated by each generation is asymptotically equivalent to fewer than two independent signals, even when generations are arbitrarily large.
    Date: 2019–11
  5. By: Pierrot, Thibaud
    Abstract: An individual is affected by the curse of knowledge when he fails to appreciate the viewpoint of a lesser-informed agent. In contrast to a rational person, the cursed individual behaves as if part of his private information were common knowledge. This systematic cognitive bias alters many predictions derived from game theory which involve an asymmetry of information between the players. We investigate in this article how the curse of knowledge modifies individual behaviours in negotiation situations. We report the results of a laboratory experiment that was designed to isolate the effect of the curse of knowledge by varying the information available to the players ceteris paribus. Our analysis of the expectations and choices of subjects playing the ultimatum game in different information settings indicates that the curse of knowledge can lead to an increase of impasses in the negotiation and partially explains empirically observed phenomenons such as abnormally high rates of bargaining failures. Unlike previous behavioural research, that is mostly based on motivated beliefs and actions, this work provides a purely nonstrategic explanation for negotiation impasses observed in many real life situations.
    Keywords: curse of knowledge,hindsight bias,negotiation,experiments
    JEL: C91 D80 D82 D83 D84
    Date: 2019
  6. By: Laurens Cherchye; Thomas Demuynck; Bram De Rock; Mikhail Freer
    Abstract: We provide a revealed preference characterization of expected utility maximization in binary lotteries with prize-probability trade-offs. This characterization applies to a wide variety of decision problems, including first price auctions, crowdfunding games, posted price mechanisms and principal agent problems. We start by characterizing optimizing behavior when the empirical analyst exactly knows either the probability function of winning or the decision maker’s utility function. Subsequently, we provide a statistical test for the case where the utility function is unknown and the probability function has to be estimated. Finally, we consider the situation with both the probability function and utility function unknown. We show that expected utility maximization has empirical content when these functions satisfy log-concavity assumptions. We demonstrate the empirical usefulness of our theoretical findings through an application to an experimental data set.
    Keywords: expected utility maximization; prize-probability trade offs; revealed preference characterization; testable implication; experiemental data
    JEL: D00
    Date: 2019–11
  7. By: Despoina Alempaki (University of Warwick); Andrew M Colman (University of Leicester); Felix Koelle (University of Cologne); Graham Loomes (University of Warwick); Briony D Pulford (University of Leicester)
    Abstract: In experimental games, a substantial minority of players often fail to best respond. Using two-person 3x3 one-shot games, we investigated whether ‘structuring’ the pre-decision deliberation process produces greater consistency between individuals’ stated values and beliefs on the one hand and their choice of action on the other. Despite this intervention, only just over half of strategy choices constituted best responses. Allowing for risk aversion made little systematic difference. Distinguishing between players according to their other-regarding preferences made a statistically significant difference, but best response rates increased only marginally. It may be that some irreducible minimum level of noise/imprecision generates some proportion of sub-optimal choices. If so, more research might usefully be directed towards competing models of stochastic strategic choice.
    Keywords: game theory; best response; strategic thinking; social preferences; stated beliefs
    Date: 2019
  8. By: Guillaume Cheikbossian (CEE-M - Centre d'Economie de l'Environnement - Montpellier - FRE2010 - INRA - Institut National de la Recherche Agronomique - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier)
    Abstract: In this paper, I study the ability of group members to cooperate against an incumbent in a repeated rent-seeking game and where group members and the incumbent have di¤erent valuations of the prize. I rst consider that group members use Nash Reversion Strategies (NRS) to support cooperative behavior and show that full cooperation within the group is more easily sustained as a Stationary Subgame Perfect (Nash) Equilibrium (SSPE) as either group size, or the heterogeneity in the valuation of the prize, increases. In turn, I show that full cooperation within the challenger group can also be sustained as a Weakly Renegotiation-Proof Equilibrium (WRPE). Yet, an increase in group size makes it more di¢ cult to sustain within-group cooperation but an increase in the relative valuation of the prize by group members still facilitates group cooperation.
    Keywords: Renegotiation,Collective Action,Group Cooperation,Repeated Game,Trigger Strategies
    Date: 2019
  9. By: Davit Maskharashvilia (Institute of Economic Studies, Faculty of Social Sciences, Charles University, Opletalova 26, 110 00, Prague, Czech Republic)
    Abstract: The paper models duopolistic competition in so called monotowns: towns with one big factory where most of the citizens are employed. Workers after job go to one of the competitor shops, buy the product and bring it home. Nash equilibrium is found for linear and two-dimensional cases. The principle of maximum differentiation is refuted.
    Keywords: spatial competition, two-dimensional city
    JEL: C72 D43 L13 R32
    Date: 2019–02
  10. By: Walter Briec (CRESEM - Centre de Recherche sur les Sociétés et Environnements en Méditerranées - UPVD - Université de Perpignan Via Domitia); Marc Dubois (ICCF - Institut de Chimie de Clermont-Ferrand - Clermont Auvergne - Sigma CLERMONT - Sigma CLERMONT - UCA - Université Clermont Auvergne - CNRS - Centre National de la Recherche Scientifique); Stéphane Mussard (CHROME - Détection, évaluation, gestion des risques CHROniques et éMErgents (CHROME) / Université de Nîmes - UNIMES - Université de Nîmes)
    Date: 2019–11–04
  11. By: Masaaki Fujii (The University of Tokyo)
    Abstract: In this work, we systematically investigate mean field games and mean field type control problems with multiple populations using a coupled system of forward-backward stochastic differential equations of McKean-Vlasov type stemming from Pontryagin’s stochastic maximum principle. Although the same cost functions as well as the coefficient functions of the state dynamics are shared among the agents within each population, they can be different population by population. We study the mean field limits of the three different situations; (i) every agent is non-cooperative; (ii) the agents within each population are cooperative; and (iii) only for some populations, the agents are cooperative within each population. We provide several sets of sufficient conditions for the existence of mean field equilibrium for each of these cases.
    Date: 2019–11
  12. By: Sergey I. Nikulin; Olga S. Rozanova
    Abstract: We study the mean field games equations, consisting of the coupled Kolmogorov-Fokker-Planck and Hamilton-Jacobi-Bellman equations. The equations are complemented by initial and terminal conditions. It is shown that with some specific choice of data, this problem can be reduced to solving a quadratically nonlinear system of ODEs. This situation occurs naturally in economic applications. As an example, the problem of forming an investor's opinion on an asset is considered.
    Date: 2019–11
  13. By: Marie-Laure BREUILLÉ (CESAER, INRA.); Emmanuelle TAUGOURDEAU (CREST, University of Paris-Saclay, ENS Paris-Saclay.)
    Abstract: This paper analyzes the fiscal interactions arising from gasoline taxation in a federation. We adopt a general theoretical model for studying simultaneous vertical and horizontal tax competition by i) introducing a specific monetary cost of refueling ii) assuming that the price of gasoline is affected by either excise taxes (regional and federal) and the VAT rate, ii) considering elastic demand for gasoline. We show that at the symmetric equilibrium, horizontal taxes are strategic complements but vertical taxes are strategic may be substitutes. Moreover, horizontal excise taxes are strategic substitutes with VAT whereas the result is unclear for the reaction between regional and federal excise taxes. Finally, we show that the tax reaction functions and thus the equilibria crucially differ according to the pattern of decision-making (social planner, Nash or defederalized leadership).
    Keywords: Fiscal Federalism, Gasoline Taxation, Horizontal and Vertical Tax Interactions.
    JEL: E62 H7 Q48
    Date: 2019–11–19
  14. By: Romain Baeriswyl (Swiss National Bank - Swiss National Bank); Kene My (BETA - Bureau d'Économie Théorique et Appliquée - INRA - Institut National de la Recherche Agronomique - UNISTRA - Université de Strasbourg - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique); Camille Cornand (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Central banks' disclosures, such as forward guidance, have a weaker effect on the economy in reality than in theoretical models. The present paper contributes to understanding how people pay attention and react to various sources of information. In a beauty-contest with information acquisition, we show that strategic complementarities give rise to a double overreaction to public disclosures by increasing agents equilibrium attention, which, in turn, increases the weight assigned to them in equilibrium action. A laboratory experiment provides evidence that the effect of strategic complementarities on the realised attention and the realised action is qualitatively consistent with theoretical predictions, though quantitatively weaker. Both the lack of attention to public disclosures and a limited level of reasoning by economic agents account for the weaker realised reaction. This suggests that it is just as important for a central bank to control reaction to public disclosures by swaying information acquisition by recipients as it is by shaping information disclosures themselves.
    Keywords: beauty-contest,information acquisition,overreaction,central bank communication
    Date: 2019
  15. By: Alger, Ingela; Weibull, Jörgen W.; Van Leeuwen, Boris
    Abstract: Recent theoretical work suggests that a form of Kantian morality has evolutionary foundations. To investigate the relative importance of Kantian morality and social preferences, we run laboratory experiments on strategic interaction in social dilemmas. Using a structural model, we estimate social preferences and morality concerns both at the individual level and the aggregate level. We observe considerable heterogeneity in social preferences and Kantian morality. A finite mixture analysis shows that the subject pool is well described as consisting of two types. One exhibits a combination of inequity aversion and Kantian morality, while the other combines spite and Kantian morality.
    JEL: C49 C72 C9 C91 D03 D84
    Date: 2019–11
  16. By: Yonatan Gur; Gregory Macnamara; Daniela Saban
    Abstract: We consider a platform facilitating trade between sellers and buyers with the objective of maximizing consumer surplus. In many such platforms prices are set by revenue-maximizing sellers, but the platform may influence prices through its promotion policy (e.g., increasing demand to a certain product by assigning to it a prominent position on the webpage), and the information it reveals about the additional demand associated with being promoted. Identifying effective joint information design and promotion policies for the platform is a challenging dynamic problem as sellers can sequentially learn the promotion "value" from sales observations and update prices accordingly. We introduce the notion of confounding promotion polices, which are designed to prevent a Bayesian seller from learning the promotion value (at the cost of diverting consumers away from the best product offering). Leveraging this notion, we characterize the maximum long-run average consumer surplus that is achievable by the platform when the seller is myopic. We then establish that long-run average optimality can be maintained by optimizing over a class of joint information design and promotion policies under which the platform provides the seller with a (random) information signal at the beginning of the horizon, and then uses the best confounding promotion policy, which prevents the seller from further learning. Additionally, we show that myopic pricing is a best response to such a platform strategy, thereby establishing an approximate Bayesian Nash equilibrium between the platform and the seller. Our analysis allows one to identify practical long-run average optimal platform policies in a broad range of demand models and evaluate the impact of the search environment and the design of promotions on consumer surplus.
    Date: 2019–11
  17. By: Reda Aboutajdine (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique); Pierre Picard (X-DEP-ECO - Département d'Économie de l'École Polytechnique - X - École polytechnique, CREST - Centre de Recherche en Économie et Statistique - ENSAI - Ecole Nationale de la Statistique et de l'Analyse de l'Information [Bruz] - X - École polytechnique - ENSAE ParisTech - École Nationale de la Statistique et de l'Administration Économique - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In principal-agent problems, the repetition of interactions in a dynamic setting may alter the equilibrium outcomes. In insurance fraud, the frequency of auditor-auditee interactions is higher when there is collusion between policyholders and service providers (e.g., car repairers, health care providers...). The same service provider usually handles claims filed by many policyholders affiliated to the same insurer, and thus the insurer-service provider interactions are repeated with reputation effects. We analyze this issue in a repeated game where the insurer may potentially face a dishonest service provider who colludes with policyholders. The insurer has beliefs about the type (honest or dishonest) of the service provider and she may verify the truthfulness of the claim through costly audits. The reputation of the service provider corresponds to these beliefs and changes over time, and misbehaving deteriorates this reputation. In the end, it may lead to a breach of contract and thus represents a threat that may deter from defrauding. We show that, at early periods, the insurer audits agents who would not be monitored in a static setting because their reputation is good enough. Corresponding dishonest agents who slipped under the radar and have an initially good reputation do not defraud systematically at early periods, as opposed to the instantaneous game. In addition, auditing efforts for medium reputations are lower as dishonest agents want to preserve the possibility of defrauding later. Both aspects corresponds to a reputation-based deterrence mechanism, where the fear of deteriorating one's reputation acts as a discipline device for dishonest service providers.
    Keywords: Deterrence,Learning,Insurance fraud,Optimal auditing,Reputation
    Date: 2019–11–20
  18. By: Long, Ngo Van; Miao, Zhuang
    Abstract: We model an oligopoly where firms are allowed to freely enter and exit the market and choose the quality level of their products by incurring different set-up costs. Using this framework, we study the mix of firms in the long-run Cournot-Nash equilibrium under different cost structures and the effects of market size on market outcomes. Specifically, we consider two alternative specifications of cost structure. In the first specification, quality upgrading requires a large increment in the set-up cost or R&D investment. Under this cost structure, we show that in the Nash equilibrium, each firm specializes in a single quality level, and an increase in the market size leads to (i) an increase in the fraction of firms that specialize in the high quality product, (ii) an increase in the market share of the high quality product, and (iii) a reduction in firms'markups and in markup dispersion. Under the second type of cost structure where quality upgrading only requires higher marginal cost, we find that all firms will produce both types of product, and the value share of the high-quality product increases as the market expands, but in quantity terms, the market share of the high quality product does not change. Finally, we find that trade liberalization has broadly similar effects to that of a market expansion, but the supply of the high-quality product from the smaller economy may decrease.
    Keywords: Multiproduct firms, Cournot competition, Vertical product differentiation, Cost structure, Market size, Trade liberalization
    JEL: L1 L2 F15
    Date: 2019–11
  19. By: Matata Ponyo Mapon; Jean-Paul K. Tsasa
    Abstract: This paper reexamines the validity of the natural resource curse hypothesis, using the database of mineral exporting countries. Our findings are as follows: (i) Resource-rich countries (RRCs) do not necessarily exhibit poor political, economic and social performance; (ii) RRCs that perform poorly have a low diversified exports portfolio; (iii) In contrast, RRCs with a low diversified exports portfolio do not necessarily perform poorly. Then, we develop a model of strategic interaction from a Bayesian game setup to study the role of leadership and governance in the management of natural resources. We show that an improvement in the leadership-governance binomial helps to discipline the behavior of lobby groups (theorem 1) and generate a Pareto improvement in the management of natural resources (theorem 2). Evidence from the World Bank Group's CPIA data confirms the later finding. Our results remain valid after some robustness checks.
    Date: 2019–11

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