nep-gth New Economics Papers
on Game Theory
Issue of 2020‒03‒23
fourteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Compromise, Don't Optimize: A Prior-Free Alternative to Perfect Bayesian Equilibrium By Karl Schlag; Andriy Zapechelnyuk
  2. Group targeting under networked synergies By Mohamed Belhaj; Frédéric Deroïan
  3. A Note on Solving Discretely-Constrained Nash-Cournot Games via Complementarity By Dimitri J. Papageorgiou; Francisco Trespalacios; Stuart Harwood
  4. Intertemporal Price Discrimination in Sequential Quantity-Price Games By James D. Dana Jr.; Kevin R. Williams
  5. Talkin' Bout Cooperation By Özkes, Ali; Hanaki, Nobuyuki
  6. Me, myself and I: a general theory of non-Markovian time-inconsistent stochastic control for sophisticated agents By Camilo Hern\'andez; Dylan Possama\"i
  7. Competition Among Charities: Field Experimental Evidence from a State Income Tax Credit for Charitable Giving By Chandrayee Chatterjee; James C. Cox; Michael K. Price; Florian Rundhammer
  8. Spread of Information, Inequality and Cooperation By Pablo Brañas-Garza; Elena Molis; Levent Neyse
  9. A Mean-Field Game Approach to Equilibrium Pricing, Optimal Generation, and Trading in Solar Renewable Energy Certificate (SREC) Markets By Arvind Shrivats; Dena Firoozi; Sebastian Jaimungal
  10. International Trade, Differentiated Goods and Strategic Asymmetry By John Gilbert; Onur A. Koska; Reza Oladi
  11. A New Mechanism to Alleviate the Crises of Confidence in Science-With An Application to the Public Goods Game By Luigi Butera; Philip J. Grossman; Daniel Houser; John A. List; Marie-Claire Villeval
  12. Inclusive Cognitive Hierarchy By Koriyama, Yukio; Ozkes, Ali
  13. Equity-Based Incentives, Production/Service Functions And Game Theory By Michael C. Nwogugu
  14. Equilibrium Model of Limit Order Books: A Mean-field Game View By Jin Ma; Eunjung Noh

  1. By: Karl Schlag; Andriy Zapechelnyuk
    Abstract: Perfect Bayesian equilibrium is the classic solution concept for games with incomplete information, where players optimize under given beliefs over states. We introduce a new concept called perfect compromise equilibrium, where players find compromise decisions that are good in all states. This solution concept is tractable even if states are high dimensional as it does not rely on priors, and it always exists. We demonstrate the power of our solution concept in prominent economic examples, including Cournot and Bertrand markets, Spence's signaling, and bilateral trade with common value.
    Date: 2020–03
  2. By: Mohamed Belhaj (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Frédéric Deroïan (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique)
    Abstract: A principal targets agents organized in a network of local complementarities, in order to increase the sum of agents' effort. We consider bilateral public contracts à la Segal (1999). The paper shows that the synergies between contracting and non-contracting agents deeply impact optimal contracts: they can lead the principal to contract with a subset of the agents, and to refrain from contracting with central agents.
    Keywords: Synergies,Network,Optimal group targeting,Aggregate effort
    Date: 2019–11
  3. By: Dimitri J. Papageorgiou; Francisco Trespalacios; Stuart Harwood
    Abstract: Discretely-constrained Nash-Cournot games have attracted attention as they arise in various competitive energy production settings in which players must make one or more discrete decisions. Gabriel et al. ["Solving discretely-constrained Nash-Cournot games with an application to power markets." Networks and Spatial Economics 13(3), 2013] claim that the set of equilibria to a discretely-constrained Nash-Cournot game coincides with the set of solutions to a corresponding discretely-constrained mixed complementarity problem. We show that this claim is false.
    Date: 2020–02
  4. By: James D. Dana Jr.; Kevin R. Williams
    Abstract: This paper develops an oligopoly model in which firms first choose capacity and then compete in prices in a series of advance-purchase markets. We show that when the elasticity of demand falls across periods, strong competitive forces prevent firms from utilizing intertemporal price discrimination. We then enrich the model by allowing firms to use inventory controls, or sales limits assigned to individual prices. We show that competing firms can profitably use inventory controls. Thus, although typically viewed as a tool to manage demand uncertainty, we show that inventory controls can also facilitate price discrimination in oligopoly.
    JEL: D21 D43 L0 L13
    Date: 2020–02
  5. By: Özkes, Ali; Hanaki, Nobuyuki
    Abstract: We experimentally study the interaction of the effects of the strategic environment and com- munication on the observed levels of cooperation in two-person finitely repeated games with a Pareto-inefficient Nash equilibrium. We replicate previous findings that point to higher levels of tacit cooperation under strategic complementarity compared to strategic substitution. In our data, however, this is not due to differences in levels of reciprocity as suggested previously. Instead, we find that slow learning and noisy choices might drive this effect. When subjects are allowed to communicate in free-form online chat before making choices, cooperation levels increase significantly to the extent that the difference in the two strategic environments dis- appears. A machine-assisted natural language processing approach shows how the content of communication differs in the two strategic environments.
    Keywords: Communication, Cooperation, Reinforcement learning, Strategic environment, Structural topic modeling
    Date: 2020–03–04
  6. By: Camilo Hern\'andez; Dylan Possama\"i
    Abstract: We develop a theory for continuous-time non-Markovian stochastic control problems which are inherently time-inconsistent. Their distinguishing feature is that the classical Bellman optimality principle no longer holds. Our formulation is cast within the framework of a controlled non-Markovian forward stochastic differential equation, and a general objective functional setting. We adopt a game-theoretic approach to study such problems, meaning that we seek for \emph{sub-game perfect Nash equilibrium} points. As a first novelty of this work, we introduce and motivate a new definition of equilibrium that allows us to establish rigorously an \emph{extended dynamic programming principle}, in the same spirit as in the classical theory. This in turn allows us to introduce a system of backward stochastic differential equations analogous to the classical HJB equation. We prove that this system is fundamental, in the sense that its well-posedness is both necessary and sufficient to characterise the value function and equilibria. As a final step we provide an existence and uniqueness result. Some examples and extensions of our results are also presented.
    Date: 2020–02
  7. By: Chandrayee Chatterjee; James C. Cox; Michael K. Price; Florian Rundhammer
    Abstract: Donations to charity are widely encouraged by policymakers through targeted tax incentives such as tax credits for contributions only to qualifying causes. We use an online field experiment to test how the largest such program, Arizona\'s state income tax credit for donations to qualifying charities, affects donation decisions in a modified dictator game. In the experiment, we randomize whether subjects receive detailed information about the tax credit program prior to selecting potential recipients and completing the allocation task. We also vary the number of charities that subjects can select as recipients along with the (tax-credit) qualifying vs. non-qualifying composition of the choice set. We find that average giving is unaffected by the information provision and composition of the choice set. However, we find that subjects direct significantly more funds towards qualifying charities when provided information about the tax program; an effect that is enhanced when subjects select multiple recipients from lists that contain a mixture of qualifying and non-qualifying organizations. Our results underline the importance of including a portfolio of choices when studying the impact of targeted incentives because this makes it possible to identify a central feature of our data: participants \"rob Peter\" (non-qualifying charities) \"to pay Paul\" (qualifying charities).
    Date: 2020–03
  8. By: Pablo Brañas-Garza (Loyola University, Cordoba); Elena Molis (Department of Economic Theory and Economic History, University of Granada.); Levent Neyse (SOEP at DIW, Berlin, Germany)
    Abstract: With the rise of information technologies, citizens can compare public good efficiencies between countries easier now and being aware of large efficiency differences may affect tax compliance behavior. We experimentally test whether contributions in the public goods game are sensitive to comparative information regarding marginal per capita returns of other groups. Our experimental results indeed suggest that comparative information creates polarization in contribution levels in the presence of large inequality between comparison groups.
    Keywords: Public Goods; Inequality; Cooperation; Information; Experiment
    JEL: C9 H4 D8
  9. By: Arvind Shrivats; Dena Firoozi; Sebastian Jaimungal
    Abstract: SREC markets are a market-based system designed to incentivize solar energy generation. A regulatory body imposes a lower bound on the amount of energy each regulated firm must generate via solar means, providing them with a certificate for each MWh generated. Regulated firms seek to navigate the market to minimize the cost imposed on them, by modulating their SREC generation and trading activities. As such, the SREC market can be viewed through the lens of a large stochastic game with heterogeneous agents, where agents interact through the market price of the certificates. We study this stochastic game by solving the mean-field game (MFG) limit with sub-populations of heterogeneous agents. Our market participants optimize costs accounting for trading frictions, cost of generation, SREC penalty, and generation uncertainty. Using techniques from variational analysis, we characterize firms' optimal controls as the solution of a new class of McKean-Vlasov FBSDE and determine the equilibrium SREC price. We numerically solve the MV-FBSDEs and conclude by demonstrating how firms behave in equilibrium using simulated examples.
    Date: 2020–03
  10. By: John Gilbert; Onur A. Koska (University of Canterbury); Reza Oladi
    Abstract: We scrutinize international trade arising from oligopolistic rivalry (reciprocal dumping) in a model where the goods are horizontally differentiated and where otherwise symmetric firms located in different regions adopt asymmetric strategies – one competing in prices and the other competing in quantities. Uni-directional and intra-industry trade appear endogenously in our framework. We show that as trade costs decline the equilibrium outcome will transition from autarky through a region of uni-directional trade, before intra-industry trade ultimately arises. In the uni-directional trade region, potential market entry by the rival has an impact on firm behavior even though the rival is not exporting. The gains from trade are asymmetric in general, due to firms' asymmetric strategies, and sufficient product differentiation is required for trade to welfare dominate autarky especially with one of the trade partners adopting aggressive strategic behavior even when trade is costless.
    Keywords: Intra-industry trade, product differentiation, gains from trade, asymmetric strategies
    JEL: F01
    Date: 2020–03–01
  11. By: Luigi Butera; Philip J. Grossman; Daniel Houser; John A. List; Marie-Claire Villeval
    Abstract: Creation of empirical knowledge in economics has taken a dramatic turn in the past few decades. One feature of the new research landscape is the nature and extent to which scholars generate data. Today, in nearly every field the experimental approach plays an increasingly crucial role in testing theories and informing organizational decisions. Whereas there is much to appreciate about this revolution, recently a credibility crisis has taken hold across the social sciences, arguing that an important component of Fischer (1935)'s tripod has not been fully embraced: replication. Indeed, while the importance of replications is not debatable scientifically, current incentives are not sufficient to encourage replications from the individual researcher's perspective. We analyze a novel mechanism that promotes replications by leveraging mutually beneficial gains between scholars and editors. We develop a model capturing the trade-offs involved in seeking independent replications before submission of a paper to journals. We demonstrate the operation of this method via an investigation of the effects of Knightian uncertainty on cooperation rates in public goods games, a pervasive and yet largely unexplored feature in the literature.
    JEL: A11 C18 C92 C93 D82
    Date: 2020–02
  12. By: Koriyama, Yukio; Ozkes, Ali
    Abstract: Cognitive hierarchy theory, a collection of structural models of non-equilibrium thinking, in which players' best responses rely on heterogeneous beliefs on others' strategies including naive behavior, proved powerful in explaining observations from a wide range of games. We introduce an inclusive cognitive hierarchy model, in which players do not rule out the possibility of facing opponents at their own thinking level. Our theoretical results show that inclusiveness is crucial for asymptotic properties of deviations from equilibrium behavior in expansive games. We show that the limiting behaviors are categorized in three distinct types: naive, Savage rational with inconsistent beliefs, and sophisticated. We test the model in a laboratory experiment of collective decision-making. The data suggests that inclusiveness is indispensable with regard to explanatory power of the models of hierarchical thinking.
    Keywords: cognitive hierarchy, collective decision-making, level-k model, strategic thinking
    Date: 2020–03–04
  13. By: Michael C. Nwogugu
    Abstract: EBIs/ESOs substantially change the traditional production/service function because ESOs/EBIs can have different psychological effects(motivation or de-motivation), and can create intangible capital and different economic payoffs. Although Game Theory is flawed, it can be helpful in describing interactions in ESO/EBIs transactions. ESOs/EBIs involve two-stage games and there are no perfect Nash Equilibria for the two sub-games. The large number of actual and potential participants in these games significantly complicates resolution of equilibria and increases the dynamism of the games given that players are more sensitive to other peoples moves in such games. This article: a) analyzes how ESOs/EBIs affect traditional assumptions of production functions (in both the manufacturing and service sectors), b) analyzes ESOs/EBIs transactions using game theory concepts, c) illustrates some of the limitations of game theory.
    Date: 2020–02
  14. By: Jin Ma; Eunjung Noh
    Abstract: In this paper we study a continuous time equilibrium model of limit order book (LOB) in which the liquidity dynamics follows a non-local, reflected mean-field stochastic differential equation (SDE) with evolving intensity. Generalizing the basic idea of Ma et al. (2015), we argue that the frontier of the LOB (e.g., the best asking price) is the value function of a mean-field stochastic control problem, as the limiting version of a Bertrand-type competition among the liquidity providers. With a detailed analysis on the $N$-seller static Bertrand game, we formulate a continuous time limiting mean-field control problem of the representative seller. We then validate the dynamic programming principle (DPP), and show that the value function is a viscosity solution of the corresponding Hamilton-Jacobi-Bellman (HJB) equation. We argue that the value function can be used to obtain the equilibrium density function of the LOB, following the idea of Ma et al. (2015).
    Date: 2020–02

This nep-gth issue is ©2020 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.
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