nep-gth New Economics Papers
on Game Theory
Issue of 2021‒08‒30
sixteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Best-Response Dynamics, Playing Sequences, And Convergence To Equilibrium In Random Games By Pangallo, Marco; Heinrich, Torsten; Jang, Yoojin; Scott, Alex; Tarbush, Bassel; Wiese, Samuel; Mungo, Luca
  2. Expected Values for Variable Network Games By Subhadip Chakrabarti; Loyimee Gogoi; Robert P Gilles; Surajit Borkotokey; Rajnish Kumar
  3. The perpetual trouble with network products: Why IT firms choose partial compatibility By Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
  4. Inequity Aversion and Limited Foresight in the Repeated Prisoner’s Dilemma By Backhaus, Teresa; Breitmoser, Yves
  5. Becker-Shapley-Shubik in the Lab: An Experimental Study of Decentralized Matching with Transfers By Zhang, Hanzhe; He, Simin; Wu, Jiabin
  6. The Frequency of Convergent Games under Best-Response Dynamics By Heinrich, Torsten; Wiese, Samuel
  7. Strategic Exploration for Innovation By Shangen Li
  8. Is consistency the panacea? Inconsistent or consistent tax transfer prices with strategic taxpayer and tax authority behavior By Diller, Markus; Lorenz, Johannes; Schneider, Georg; Sureth, Caren
  9. Ex-post implementation with interdependent values By Saurav Goyal; Aroon Narayanan
  10. Deep Signature FBSDE Algorithm By Qi Feng; Man Luo; Zhaoyu Zhang
  11. Axiomatic Characterizations of a Proportional Influence Measure for Sequential Projects with Imperfect Reliability By van Beek, Andries; Borm, Peter; Quant, Marieke
  12. Global lending conditions and international coordination of financial regulation policies By Enisse Kharroubi
  13. Curbing Price Fluctuations in Cap-and-Trade Auctions By Thomas D. Jeitschko; Pallavi Pal
  14. Persuasion and Information Aggregation in Elections By Carl Heese; Stephan Lauermann
  15. Wage Setting Under Targeted Search By Anton A. Cheremukhin; Paulina Restrepo-Echavarria
  16. Influential News and Policy-making By Federico Vaccari

  1. By: Pangallo, Marco; Heinrich, Torsten; Jang, Yoojin; Scott, Alex; Tarbush, Bassel; Wiese, Samuel; Mungo, Luca
    Abstract: We show that the playing sequence–the order in which players update their actions–is a crucial determinant of whether the best-response dynamic converges to a Nash equilibrium. Specifically, we analyze the probability that the best-response dynamic converges to a pure Nash equilibrium in random n-player m-action games under three distinct playing sequences: clockwork sequences (players take turns according to a fixed cyclic order), random sequences, and simultaneous updating by all players. We analytically characterize the convergence properties of the clockwork sequence best-response dynamic. Our key asymptotic result is that this dynamic almost never converges to a pure Nash equilibrium when n and m are large. By contrast, the random sequence best-response dynamic converges almost always to a pure Nash equilibrium when one exists and n and m are large. The clockwork best-response dynamic deserves particular attention: we show through simulation that, compared to random or simultaneous updating, its convergence properties are closest to those exhibited by three popular learning rules that have been calibrated to human game-playing in experiments (reinforcement learning, fictitious play, and replicator dynamics).
    Keywords: Best-response dynamics, equilibrium convergence, random games, learning models in games
    JEL: C62 C72 C73 D83
    Date: 2021–01
  2. By: Subhadip Chakrabarti; Loyimee Gogoi; Robert P Gilles; Surajit Borkotokey; Rajnish Kumar
    Abstract: A network game assigns a level of collectively generated wealth to every network that can form on a given set of players. A variable network game combines a network game with a network formation probability distribution, describing certain restrictions on network formation. Expected levels of collectively generated wealth and expected individual payoffs can be formulated in this setting. We investigate properties of the resulting expected wealth levels as well as the expected variants of well-established network game values as allocation rules that assign to every variable network game a payoff to the players in a variable network game. We establish two axiomatizations of the Expected Myerson Value, originally formulated and proven on the class of communication situations, based on the well-established component balance, equal bargaining power and balanced contributions properties. Furthermore, we extend an established axiomatization of the Position Value based on the balanced link contribution property to the Expected Position Value.
    Date: 2021–08
  3. By: Stadler, Manfred; Tobler Trexler, Céline; Unsorg, Maximiliane
    Abstract: Compatibility of network products is an important issue in markets for communication technology as well as hard- and software products. Empirical findings suggest that firms competing in these markets typically choose intermediate degrees of product compatibility. We present a strategic two-stage game of two firms deciding strategically or commonly on the degree of product compatibility in the first stage and on prices in the second stage. Indeed, partial compatibility constitutes a subgame perfect Nash equilibrium when coordination costs of standardization are high and the installed bases are low.
    Keywords: Compatibility,Network Products,Network Effects
    JEL: C72 L13 L15
    Date: 2021
  4. By: Backhaus, Teresa (Center for Mathematical Economics, Bielefeld University); Breitmoser, Yves (Center for Mathematical Economics, Bielefeld University)
    Abstract: Reanalyzing 12 experiments on the repeated prisoner’s dilemma (PD), we robustly observe three distinct subject types: defectors, cautious cooperators and strong cooperators. The strategies used by these types are surprisingly stable across experiments and uncorrelated with treatment parameters, but their population shares are highly correlated with treatment parameters. As the discount factor increases, the shares of defectors decrease and the relative shares of strong cooperators increase. Structurally analyzing behavior, we next find that subjects have limited foresight and assign values to all states of the supergame, which relate to the original stage-game payoffs in a manner compatible with inequity aversion. This induces the structure of coordination games and approximately explains the strategies played using Schelling’s focal points: after (*c;c*) subjects play according to the coordination game’s cooperative equilibrium, after (*d;d*) they play according to its defective equilibrium, and after (*c;d*) or (*d;c*) they play according to its mixed equilibrium.
    Keywords: Repeated game, Behavior, Tit-for-tat, Mixed strategy, Memory, Belief-free equilibrium, Laboratory experiment
    Date: 2021–08–24
  5. By: Zhang, Hanzhe (Michigan State University, Department of Economics); He, Simin (Department of Economics, Shanghai University of Finance and Economics); Wu, Jiabin (Department of Economics, University of Oregon)
    Abstract: We experimentally study Becker-Shapley-Shubik matching models. We show that whether efficient matching is assortative and whether the pairwise Nash-Rubinstein bargaining outcome is stable affects matching and surplus; the canonical theory predicts no effect. In markets with equal numbers of participants on the two sides, individual payoffs in our and others’ experiments cannot be explained by existing refinements of the core, but are consistent with our noncooperative model’s prediction. In markets with unequal numbers of participants on the two sides, noncompetitive outcomes—subjects on the long side do not fully compete—are not captured by the canonical theory, but by our noncooperative model.
    Keywords: decentralized matching; matching with transfers; assignment games; bargaining experiments
    JEL: C71 C72 C78 C90
    Date: 2021–08–23
  6. By: Heinrich, Torsten; Wiese, Samuel
    Abstract: Generating payoff matrices of normal-form games at random, we calculate the frequency of games with a unique pure strategy Nash equilibrium in the ensemble of n-player, m-strategy games. These are perfectly predictable as they must converge to the Nash equilibrium. We then consider a wider class of games that converge under a best-response dynamic, in which each player chooses their optimal pure strategy successively. We show that the frequency of convergent games goes to zero as the number of players or the number of strategies goes to infinity. In the 2-player case, we show that for large games with at least 10 strategies, convergent games with multiple pure strategy Nash equilibria are more likely than games with a unique Nash equilibrium. Our novel approach uses an n-partite graph to describe games.
    Keywords: Pure Nash equilibrium, best-response dynamics, random games
    Date: 2020–11
  7. By: Shangen Li
    Abstract: We analyze a game of technology development where players allocate resources between exploration, which continuously expands the public domain of available technologies, and exploitation, which yields a flow payoff by adopting the explored technologies. The qualities of the technologies are correlated and initially unknown, and this uncertainty is fully resolved once the technologies are explored. We consider Markov perfect equilibria with the quality difference between the best available technology and the latest technology under development as the state variable. In all such equilibria, while the players do not fully internalize the benefit of failure owing to free-riding incentives, they are more tolerant of failure than in the single-agent optimum thanks to an encouragement effect. In the unique symmetric equilibrium, the cost of exploration determines whether free-riding prevails as team size grows. Pareto improvements over the symmetric equilibrium can be achieved by asymmetric equilibria where players take turns performing exploration.
    Date: 2021–08
  8. By: Diller, Markus; Lorenz, Johannes; Schneider, Georg; Sureth, Caren
    Abstract: This study investigates how strategic tax transfer pricing of a multinational company (MNC) and two tax authorities in different countries affects production and tax avoidance decisions at the firm level and tax revenues at the country level. We employ a game-theoretical model to analyze the costs and benefits of two tax transfer pricing regimes (consistency vs. inconsistency) under asymmetric information. Though tax transfer pricing harmonization is considered a promising instrument to fight undesired tax avoidance, the implications are largely unclear. We find tax avoidance in equilibrium in both countries under inconsistency. Surprisingly, we identify conditions under which low-tax countries benefit from consistency while high-tax countries benefit from inconsistency. This explains how the strategic interaction of taxpayer and tax authorities under firm-level heterogeneity challenges the implementation of consistent regimes. Understanding the implications of (in)consistent transfer pricing rules is crucial when reforming transfer pricing regulations to fight tax avoidance and double taxation.
    Keywords: transfer pricing,transfer pricing inconsistency,tax avoidance,tax harmonization,strategic behavior,real effects
    JEL: H20 H26 C72 K34 F53
    Date: 2021
  9. By: Saurav Goyal; Aroon Narayanan
    Abstract: We characterize ex-post implementable allocation rules for single object auctions under quasi-linear preferences with convex interdependent value functions. We show that requiring ex-post implementability is equivalent to requiring that the allocation rule must satisfy a condition that we call eventual monotonicity (EM), which is a weakening of monotonicity, a familiar condition used to characterize dominant strategy implementation.
    Date: 2021–08
  10. By: Qi Feng; Man Luo; Zhaoyu Zhang
    Abstract: We propose a deep signature/log-signature FBSDE algorithm to solve forward-backward stochastic differential equations (FBSDEs) with state and path dependent features. By incorporating the deep signature/log-signature transformation into the recurrent neural network (RNN) model, our algorithm shortens the training time, improves the accuracy, and extends the time horizon comparing to methods in the existing literature. Moreover, our algorithms can be applied to a wide range of applications such as state and path dependent option pricing involving high-frequency data, model ambiguity, and stochastic games, which are linked to parabolic partial differential equations (PDEs), and path-dependent PDEs (PPDEs). Lastly, we also derive the convergence analysis of the deep signature/log-signature FBSDE algorithm.
    Date: 2021–08
  11. By: van Beek, Andries (Tilburg University, Center For Economic Research); Borm, Peter (Tilburg University, Center For Economic Research); Quant, Marieke (Tilburg University, Center For Economic Research)
    Keywords: projects; reliability; proportional influence measure; axiomatic characterization
    Date: 2021
  12. By: Enisse Kharroubi
    Abstract: Using a model of strategic interactions between two countries, I investigate the gains to international coordination of financial regulation policies, and how these gains depend on global lending conditions. When global lending conditions are determined non-cooperatively, I show that coordinating regulatory policies leads to a Pareto improvement relative to the case of no cooperation. In the non-cooperative equilibrium, one region - the core - determines global lending conditions, leaving the other region - the periphery - in a sub-optimal situation. The periphery then tightens regulatory policy to reduce the cost of sub-optimal lending conditions. Yet, in doing so, it fails to internalise a cross-border externality: tightening regulatory policy in one region limits ex ante borrowing in the other region, which increases the cost of sub-optimal lending conditions for the periphery. The equilibrium with cooperative regulatory policies can then improve on this outcome as both regions take into account the cross-border externality and allow for larger ex ante borrowing, ending in a lower cost of suboptimal lending conditions for the periphery.
    Keywords: regulatory policy, global financial conditions, international coordination
    JEL: D53 D62 F38 F42 G18
    Date: 2021–08
  13. By: Thomas D. Jeitschko; Pallavi Pal
    Abstract: In recent years, a significant problem with the carbon credit market has been the higher than initially predicted price volatility. It is essential to study the market in a repeated-period dynamic setting to identify the factors enabling high fluctuations in prices. In this paper, we examine the dynamic auction design and propose a method to curb price volatility through a flexible supply cap. The equilibrium analysis shows that modifying the cap on per period supply can decrease price fluctuations. Currently, the government or the auctioneer sets a per-period limit on the supply, which reduces at a fixed rate over time. However, this paper suggests that a flexible cap on the per-period supply would be a better alternative. Specifically, we show that correlating the supply rate with expected future demand results in a more stable price.
    Keywords: dynamic mechanism design, auctions, emissions permits, environmental regulation, climate change
    JEL: D43 L11 L42
    Date: 2021
  14. By: Carl Heese (University of Vienna, Department of Economics); Stephan Lauermann (University of Bonn, Department of Economics)
    Abstract: This paper studies a large majority election with voters who have heterogeneous, private preferences and exogenous private signals. We show that a Bayesian persuader can implement any state-contingent outcome in some equilibrium by providing additional information. In this setting, without the persuader's information, a version of the Condorcet Jury Theorem holds. Persuasion does not require detailed knowledge of the voters' private information and preferences: the same additional information is effective across environments. The results require almost no commitment power by the persuader. Finally, the persuasion mechanism is effective also in small committees with as few as 15 members.
    Keywords: Information Aggregation, Bayes Correlated Equilibria, Persuasion, Condorcet Jury Theorem
    JEL: C72 D72 D82
    Date: 2021–08
  15. By: Anton A. Cheremukhin; Paulina Restrepo-Echavarria
    Abstract: When setting initial compensation, some firms set a fixed, non-negotiable wage while others bargain. In this paper we propose a parsimonious search and matching model with two-sided heterogeneity, where the choice of wage-setting protocol, wages, search intensity and degree of randomness in matching are endogenous. We find that posting and bargaining coexist as wage-setting protocols if there is sufficient heterogeneity in match quality, search costs or market tightness and that labor market tightness and relative costs of search play a key role in the optimal choice of the wage-setting mechanism. Finally, we show that bargaining prevalence is positively correlated with wages, residual wage dispersion and labor market tightness, both in the model and in the data.
    Keywords: wage posting; bargaining; search and matching; information
    JEL: J64 E24 J31
    Date: 2021–08–12
  16. By: Federico Vaccari
    Abstract: It is believed that interventions that change the media's costs of misreporting can increase the information provided by media outlets. This paper analyzes the validity of this claim and the welfare implications of those types of interventions that affect misreporting costs. I study a model of communication between an uninformed voter and a media outlet that knows the quality of two competing candidates. The alternatives available to the voter are endogenously championed by the two candidates. I show that higher costs may lead to more misreporting and persuasion, whereas low costs result in full revelation; interventions that increase misreporting costs never harm the voter, but those that do so slightly may be wasteful of public resources. I conclude that intuitions derived from the interaction between the media and voters, without incorporating the candidates' strategic responses to the media environment, do not capture properly the effects of these types of interventions.
    Date: 2021–08

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