nep-gth New Economics Papers
on Game Theory
Issue of 2020‒08‒17
nineteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Trouble Comes in Threes: Core stability in Minimum Cost Connection Networks By Jens Leth Hougaard; Mich Tvede
  2. Finite blockchain games By Christian Ewerhart
  3. Implementation of Optimal Connection Networks By Jens Leth Hougaard; Mich Tvede
  4. Equal Loss under Separatorization and Egalitarian Values By Zhengxing Zou; Rene van den Brink
  5. On dynamic consistency in ambiguous games By Ellis, Andrew
  6. Communication, Expectations and Trust: an Experiment with Three Media By Anna Lou Abatayo; John Lynham; Katerina Sherstyuk
  7. Imposing equilibrium restrictions in the estimation of dynamic discrete games By Victor Aguirregabiria; Mathieu Marcoux
  8. Generosity during Covid-19 the effect of social distancing and framing on donations in dictator games By Lotti, Lorenzo
  9. Large Scale Experiments on Networks: A New Platform with Applications By Choi, S.; Goyal, G.; Moisan, F.
  10. Market exit and minimax regret. By Gisèle Umbhauer
  11. Polarization, Antipathy, and Political Activism By Zhang, Hanzhe; Wu, Jiabin
  12. Investments in Social Ties, Risk Sharing and Inequality By Ambrus, A.; Elliott, M.
  13. Learning from Manipulable Signals By Mehmet Ekmekci; Leandro Gorno; Lucas Maestri; Jian Sun; Dong Wei
  14. Involuntary unemployment as a Nash equilibrium and fiscal policy By Tanaka, Yasuhito
  15. Beliefs about Others: A Striking Example of Information Neglect By Sebastian Fehrler; Baiba Renerte; Irenaeus Wolff
  16. Cooperation in a State of Anarchy By Muthoo, Abhinay
  17. Entrepreneurship, outside options and constrained By Joao Galindo da Fonseca; Iain Snoddy
  18. Strategic Information Transmission and Efficient Corporate Control By Paul Voß; Marius Kulms
  19. Collaborative production networks among unequal actors By Manuel Munoz-Herrera; Jacob Dijkstra; Andreas Flache; Rafael Wittek

  1. By: Jens Leth Hougaard (NYU-Shanghai, China; Department of Food and Resource Economics, University of Copenhagen); Mich Tvede (University of East Anglia)
    Abstract: We consider a generalization of the Minimum Cost Spanning Tree (MCST) model dubbed the Minimum Cost Connection Network (MCCN) model, where network users have connection demands in the form of a pair of target nodes they want connected directly, or indirectly. Given a network which satisfies all connection demands at min-imum cost, the problem consists of allocating the total cost of the efficient network among its users. As such, every MCCN problem induces a cooperative cost game where the cost of each each coalition of users is given by the cost of an efficient net-work satisfying the demand of the users in the coalition. Unlike in the MCST model we show that the core of the induced cost game in the MCCN model can be empty (without introducing Steiner nodes). We therefore consider sufficient conditions for non-empty core. Theorem 1 shows that when the efficient network and the demand graph consist of the same components, the induced cost game has non-empty core. Theorem 2 shows that when the demand graph has at most two components the induced cost game has non-empty core.
    Keywords: Minimum Cost Connection Network; Minimum Cost Spanning Tree; Cost Sharing; Fair allocation; The core; Balanced games
    JEL: C70 C72 D71 D85
    Date: 2020–07
  2. By: Christian Ewerhart
    Abstract: This paper studies the dynamic construction of a blockchain by competitive miners. In contrast to the literature, we assume a finite time horizon. It is shown that popular mining strategies such as adherence to conservative mining or to the longest-chain rule constitute pure-strategy Nash equilibria. However, these equilibria are not subgame perfect.
    Keywords: Blockchain, proof-of-work, Nash equilibrium, subgame perfection, selfish mining
    JEL: C72 C73 D72 E42
    Date: 2020–07
  3. By: Jens Leth Hougaard (NYU-Shanghai, China; Department of Food and Resource Economics, University of Copenhagen); Mich Tvede (University of East Anglia)
    Abstract: We consider a connection networks model. Every agent has a demand in the form of pairs of locations she wants connected, and a willingness to pay for connectivity. A planner aims at implementing a welfare maximizing network and allocating the resulting cost, but information is asymmetric: agents are fully informed, the planner is ignorant. The options for full implementation in Nash and strong Nash equilibria are studied. We simplify strategy sets without changing the set of Nash implementable correspondences. We show the correspondence of consisting of welfare maximizing networks and individually rational cost allocations is implementable. We construct a minimal Nash implementable desirable solution in the set of upper hemi-continuous and Nash implementable solutions. It is not possible to implement solutions such a the Shapley value unless we settle for partial implementation.
    Keywords: Connection networks; Welfare maximization; Nash Implementation; Strong Nash Implementation
    JEL: C70 C72 D71 D85
    Date: 2020–07
  4. By: Zhengxing Zou (Vrije Universiteit Amsterdam); Rene van den Brink (Vrije Universiteit Amsterdam)
    Abstract: We characterize the equal division value, the equal surplus division value, and the class of their ane combinations for TU-games involving equal loss under separatorization. This axiom requires that, if a player becomes a dummifying player (Casajus and Huettner, in Economics Letters 122(2): 167-169, 2014), then any two other players are equally affected.
    Keywords: Cooperative game, equal division value, equal surplus division value, axiomatization
    JEL: C71
    Date: 2020–07–18
  5. By: Ellis, Andrew
    Abstract: I consider static, incomplete information games where players may not be ambiguity neutral. Every player is one of a finite set of types, and each knows her own type but not that of the other players. Ex ante, players differ only in their taste for outcomes. If every player is dynamically consistent with respect to her own information structure and respects Consequentialism, then players act as if expected utility for uncertainty about types.
    Keywords: Ambiguity; incomplete information; dynamic consistency; strategic interaction
    JEL: J1
    Date: 2018–09–01
  6. By: Anna Lou Abatayo (Bocconi University, University of Hawaii at Manoa and University of Guelph); John Lynham (University of Hawaii at Manoa); Katerina Sherstyuk (University of Hawaii at Manoa)
    Abstract: We study how communication under differ popular media affects trust game play. Three communication media are considered: traditional face-to- face, Facebook groups, and anonymous online chat. We consider post-communication changes in player expectations and preferences, and further analyze the contents of group communications to understand the channels though which communication enhances sender and receiver behavior. For senders, social, emotional and game-relevant contents of communication all matter, significantly influencing both their expectations of fair return and preferences towards receivers. Receiver increased trustworthiness is mostly explained by their adherence to the social norm of sending back a fair share in return for the full amount received. Remarkably, these results do not qualitatively differ among the three communication media; while face-to-face had the largest volume of messages, all three media proved equally effective in enhancing trust and trustworthiness.
    Keywords: communication technology; laboratory experiments; trust games; contents analysis
    JEL: C72 C92 D83
    Date: 2020–07
  7. By: Victor Aguirregabiria (University of Toronto); Mathieu Marcoux (Université de Montréal)
    Abstract: Imposing equilibrium restrictions provides substantial gains in the estimation of dynamic discrete games. Estimation algorithms imposing these restrictions – MPEC, NFXP, NPL, and variations – have different merits and limitations. MPEC guarantees local convergence, but requires the computation of high-dimensional Jacobians. The NPL algorithm avoids the computation of these matrices, but – in games – may fail to converge to the consistent NPL estimator. We study the asymptotic properties of the NPL algorithm treating the iterative procedure as performed in finite samples. We find that there are always samples for which the algorithm fails to converge, and this introduces a selection bias. We also propose a spectral algorithm to compute the NPL estimator. This algorithm satisfies local convergence and avoids the computation of Jacobian matrices. We present simulation evidence illustrating our theoretical results and the good properties of the spectral algorithm.
    Keywords: Dynamic discrete game, Nested pseudo-likelihood, Fixed point algorithms, Convergence, Convergence selection bias
    JEL: C13 C57 C61 C73
    Date: 2019–09
  8. By: Lotti, Lorenzo
    Abstract: This paper investigates the impact of prolonged social distancing on generosity by analyzing the responses of 1255 US citizens to dictator games spread out over eight weeks of the early stages of the COVID-19 pandemic. Despite the isolation and the negative effects on employment and household �nances, individuals became more generous over this time period. There is signi�cant heterogeneity in the effect of additional regressors, such as perceived contagion risk, on the likelihood and amount donated to strangers, family members, or the government. At the same time, signi�cant effects of the position of games with respect to the others highlight the signi�cant role of framing on generous behaviours.
    Keywords: Generosity, Dictator Game, Social Preferences, Framing, Altruism, Covid-19
    JEL: C71 D63 D64 D71 D91 I14
    Date: 2020–08–04
  9. By: Choi, S.; Goyal, G.; Moisan, F.
    Abstract: This paper presents a new platform for large scale networks experiments in continuous time. The versatility of the platform is illustrated through three experiments: a game of linking, a linking game with public goods, and a linking game with trading and intermediation. Group size ranges from 8 to 100 subjects. These experiments reveal that subjects create sparse networks that are almost always highly efficient. In some experiments the networks are centralized and unequal, while in others they are dispersed and equal. These network structures are in line with theoretical predictions, suggesting that continuous time asynchronous choice facilitates a good match between experimental outcomes and theory. The size of the group has powerful effects on individual investments in linking and effort, on network structure, and on the nature of payoff inequality. Researchers should therefore exercise caution in drawing inferences about behaviour in large scale networks based on data from small group experiments.
    JEL: C92 D83 D85 Z13
    Date: 2020–07–15
  10. By: Gisèle Umbhauer
    Abstract: We study an overcrowded duopoly market where the only strategic variable is the exit time. We suppose that the surviving firm gets a positive monopoly profit and we focus on the classic context with complete information and identical firms. The only symmetric Nash equilibrium of this war of attrition is a mixed-strategy equilibrium that leads to a null expected payoff, i.e. the payoff a firm gets when it immediately exits the market. This result is not persuasive, both from an economic and from a strategic viewpoint. We argue that the minimax regret approach, that builds upon two opposite regrets - exiting the market too late and exiting the market too early - is more convincing. The minimax regret behavior, quite different from the mixed- strategy Nash equilibrium behavior, allows both firms to get a positive expected payoff.
    Keywords: war of attrition, minimax regret, Nash equilibrium, maximin payoff, mixed strategy, duopoly.
    JEL: C72 D4
    Date: 2020
  11. By: Zhang, Hanzhe (Michigan State University, Department of Economics); Wu, Jiabin (Department of Economics, University of Oregon, Eugene, OR)
    Abstract: We apply an evolutionary game theory model to explain polarization, antipathy, and political activism as a consequence of the co-evolution of individuals' ideologies and attitudes toward other ideologies. We show that the evolutionary process results in a vicious cycle with individuals becoming increasingly polarized on the ideological spectrum and the society ending up with two politically engaged groups sharing no common grounds and strong hatred against each other.
    Keywords: polarization; antipathy; political activism; value formation; cultural transmission; evolutionary game theory
    JEL: C73 Z13
    Date: 2020–08–04
  12. By: Ambrus, A.; Elliott, M.
    Abstract: This paper investigates stable and efficient networks in the context of risk-sharing, when it is costly to establish and maintain relationships that facilitate risk-sharing. We find a novel trade-off between efficiency and equality. The most stable efficient networks also generate the most inequality. The result extends to correlated income structures with individuals split into groups, such that incomes across groups are less correlated but these relationships are more costly. We find that more central agents have better incentives to form across-group links, reaffirming the efficiency benefits of having highly central agents and thus the efficiency inequality trade-off. Our results are robust to many extensions. In general, endogenously formed networks in the risk sharing context tend to exhibit highly asymmetric structures, and stark inequalities in consumption levels.
    Date: 2020–07–20
  13. By: Mehmet Ekmekci; Leandro Gorno; Lucas Maestri; Jian Sun; Dong Wei
    Abstract: We study a dynamic stopping game between a principal and an agent. The agent is privately informed about his type. The principal learns about the agent's type from a noisy performance measure, which can be manipulated by the agent via a costly and hidden action. We fully characterize the unique Markov equilibrium, and find that terminations/market crashes are often preceded by a spike in (expected) performance. Our model also predicts that, due to endogenous signal manipulation, too much transparency can inhibit learning. As the players get arbitrarily patient, the principal elicits no useful information from the observed signal.
    Date: 2020–07
  14. By: Tanaka, Yasuhito
    Abstract: Using two types of overlapping generations (OLG) model, we show that involuntary unemployment is in a Nash equilibrium of a game with a firm and consumers, and we can achieve full-employment by fiscal policy financed by seignorage not tax. Once we achieve it, it is maintained without government expenditure. Also we show that a fall in the nominal wage rate may not decrease involuntary unemployment.
    Keywords: Involuntary unemployment, Nash equilibrium, Fiscal policy
    JEL: E12 E24
    Date: 2020–07–26
  15. By: Sebastian Fehrler; Baiba Renerte; Irenaeus Wolff
    Abstract: In many games of imperfect information, players can make Bayesian inferences about other players’ types based on the information that is contained in their own type. Several behavioral theories of belief-updating even start from the assumption that players project their own type onto others also when it is not rational. We investigate such inferences in a simple laboratory task, in which types are drawn from one out of two states of the world and participants have to guess the type of another participant. We nd lile evidence for irrational (over-)projection. Instead, between 50% and 70% of the participants in our experiment completely neglect the information contained in their own type and base their choices only on the prior probabilities. Using several experimental interventions, we show that this striking neglect of information is very robust.
    Keywords: Projection, Bayesian inference, biased belief-updating
    Date: 2020
  16. By: Muthoo, Abhinay (University of Warwick)
    Abstract: We lay down a simple (game-theoretic) model of a state-of-anarchy involving three players. We focus attention on the following question : Which subset of players (if any) will agree to cooperate amongst each other? Will all three players agree to do so, or only two of the three players (and if so, which two players)? Or will no player agree to cooperate with any other player? We show that the socially optimal outcome is for all three players to agree to cooperate with each other. We also show that due to the presence of positive externalities, in equilibrium, cooperation may only be established between two of the three players (which is sub-optimal). JEL codes: D62 ; D74 ; F02
    Date: 2020
  17. By: Joao Galindo da Fonseca (Université de Montréal); Iain Snoddy (Vancouver School of Economics, University of British Columbia)
    Abstract: The literature on search frictions has often adopted the assumption of free entry. In this paper we forgo of this restriction by proposing a more realistic framework in which individuals are constantly making the decision whether or not to open a firm. Namely, firms are created through endogenous choices and business-owners and workers are drawn from the same pool. We show that in this framework, the Nash bargaining parameter is crucial for internal dynamics. In particular, workers and business owners share the same outside-options. As a result, the wage is no longer unambiguously positively related to the value of unemployment. The constrained efficient solution to this model takes the same form as the standard search model implying the same form for the Hosios condition. However, at this efficient solution changes in the rate of unemployment are either exacerbated or muted conditional on the value of the match elasticity parameter.
    Keywords: Search and matching, Entrepreneurship, Outside options, Constrained efficiency
    JEL: E24 J63 J64 D61
    Date: 2019–05
  18. By: Paul Voß; Marius Kulms
    Abstract: We present a model of corporate takeovers in which both, a potential acquirer and incumbent management have private information about the firm value under their respective leadership. Despite the two-sided asymmetric information and endogenously misaligned interests of shareholders and incumbent management, first-best control allocation is feasible if incumbent management can strategically communicate with shareholders. However, shareholders prefer access to more information than revealed in equilibrium. This demand for information leads to inefficiently few takeovers. The model provides implications for the regulation of disclosure requirements and fairness opinions, as well as empirical predictions that link executive compensation to takeover outcomes.
    Keywords: Communication, cheap talk, takeover, tender o er, signaling
    JEL: D82 D83 G34 G38
    Date: 2020–06
  19. By: Manuel Munoz-Herrera; Jacob Dijkstra; Andreas Flache; Rafael Wittek (Division of Social Science)
    Abstract: We develop a model of strategic network formation in productive exchanges to analyze the consequences of an understudied but consequential form of heterogeneity: differences between actors in the form of their production functions. We also address how this interacts with resource heterogeneity. Some actors (e.g. start-up firms) may exhibit accelerating returns to investment in joint projects, while others (e.g. established firms) may face decelerating returns. We show that if there is a direct relation between acceleration and resources, actors form exchange networks segregated by type of production function. On the other hand, if there is an inverse relation between acceleration and resources, networks emerge allowing all types of actors to collaborate, especially high-resource decelerating actors with multiple low-resource accelerating actors.
    Date: 2019–10

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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