nep-gth New Economics Papers
on Game Theory
Issue of 2021‒09‒06
fifteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Structure and oddness theorems for pairwise stable networks By Philippe Bich; Julien Fixary
  2. Evolution of cooperative networks. By Pandey, Siddhi Gyan
  3. Myopic Oligopoly Pricing By Iwan Bos; Marco A. Marini; Riccardo D. Saulle
  4. Overcoming coordination failure in games with focal points: An experimental investigation By David Rojo-Arjona; R. Stefania Sitzia; Jiwei Zheng
  5. MULTIPLE PUBLIC GOODS IN NETWORKS. By Kundu, Rajendra P.; Pandey, Siddhigyan
  6. Asymptotically optimal strategies in a diffusion approximation of a repeated betting game By Mikhail Zhitlukhin
  7. Decentralized Payment Clearing using Blockchain and Optimal Bidding By Hamed Amini; Maxim Bichuch; Zachary Feinstein
  8. Costly Waiting in Dynamic Contests: Theory and Experiment By Daniel Houser; Jian Song
  9. Adverse Selection, Heterogeneous Beliefs, and Evolutionary Learning By Alberto Palermo; Clemens Buchen
  10. How Large is the Endowment Effect in the Risky Investment Game? By Holden, Stein T.; Tilahun, Mesfin
  11. How Well Does Bargaining Work in Consumer Markets? A Robust Bounds Approach By Bradley Larsen; Joachim Freyberger
  12. Welfare in Experimental News Markets By Albertazzi, Andrea; Ploner, Matteo; Vaccari, Federico
  13. Avoiding the Cost of your Conscience: Belief Dependent Preferences and Information Acquisition By Claire Rimbaud; Alice Soldà
  14. The coercive logic of fake news By Alexander J. Stewart; Antonio A. Arechar; David G. Rand; Joshua B. Plotkin
  15. The Nonprofit's Dilemma By Prüfer, Jens; Xu, Y.

  1. By: Philippe Bich (Centre d'Economie de la Sorbonne, Paris School of Economics); Julien Fixary (Centre d'Economie de la Sorbonne, Université Paris 1 Panthéon-Sorbonne)
    Abstract: We determine the topological structure of the graph of pairwise stable weighted networks. As an application, we obtain that for large classes of polynomial payoff functions, there exists generically and odd number of pairwise stable networks. This improves the results in Bich and Morhaim ([5] or in Herings and Zhan ([14]), and can be applied to many existing models, as for example to the public good provision model of Bramoullé and Kranton ([8]), the information transmission model of Calvó-Armengol ([9]), the two-way flow model of Bala and Goyal ([2]), or Zenou-Ballester's key-player model ([3])
    Keywords: Weighted Networks; Pairwise Stable Networks Correspondence; Generic Oddness
    JEL: C72 D85
    Date: 2021–06
  2. By: Pandey, Siddhi Gyan (Jindal School of Liberal Arts and Humanities, O.P. Jindal Global University)
    Abstract: Situations that require individuals to mutually cooperate are often analysed as coordination games. This paper proposes a model of cooperative network formation where the network is formed through the process of the coordination game being played between multiple agents. Additionally, network effects are modelled in by the fact that the benefit to any agent from a mutually cooperative link is enhanced, over a base value, by a factor of her trustworthiness or reputation as observed by her partner in that link. Within this framework, evolution of cooperative networks is analysed in the presence of altruistic agents, through repeated interaction between myopically best responding agents in a finite population. Properties of networks that sustain as Nash equilibrium are also analysed.
    Keywords: coordination game ; network formation ; game theory ; social networks
    Date: 2021–08
  3. By: Iwan Bos (Department of Organisation, Strategy and Entrepreneurship, Maastricht University); Marco A. Marini (Department of Social and Economic Sciences, Sapienza University of Rome); Riccardo D. Saulle (Department of Economics and Management, University of Padova)
    Abstract: This paper examines capacity-constrained oligopoly pricing with sellers who seek myopic improvements. We employ the Myopic Stable Set stability concept and establish the existence of a unique pure-strategy price solution for any given level of capacity. This solution is shown to coincide with the set of pure-strategy Nash equilibria when capacities are large or small. For an intermediate range of capacities, it predicts a price interval that includes the mixed-strategy support. This stability concept thus encompasses all Nash equilibria and offers a pure-strategy solution when there is none in Nash terms. In particular, it provides a behavioral rationale for different types of pricing dynamics, including real-world economic phenomena such as Edgeworth-like price cycles, price dispersion and supply shortages.
    Keywords: Behavioral IO, Bounded Rationality, Capacity Constraints, Oligopoly Pricing, Myopic Stable Set
    JEL: C72 D43 L13
    Date: 2021–03
  4. By: David Rojo-Arjona (The George L Argyros School of Business and Economics, Chapman University.); R. Stefania Sitzia (School of Economics and Centre for Behavioural and Experimental Social Science, University of East Angle, Norwich.); Jiwei Zheng (School of Economics and Centre for Behavioural and Experimental Social Science, University of East Anglia, Norwich)
    Abstract: Focal points (Schelling, 1960) have shown limitations as coordination devices in games with conflict, such as the battle of the sexes games. We experimentally test whether an increase in their salience can counteract the negative impact of conflict on coordination. The intuition is that, in the presence of conflict, the solution to the coordination dilemma offered by the focal point loses importance. Increasing its salience increases its relevance and therefore coordination success. Our results provide strong support for this conjecture. Furthermore, when games feature outcomes with different degrees of payoffs’ inequality (i.e. the difference of players’ payoffs) and efficiency (i.e. the sum of players’ payoffs), increasing salience does not lead to an obvious increase in coordination, unless the salience of the focal point is maximal.
    Keywords: coordination games, focal points, salience, conflict of interests, battle-of-thesexes, intermixed-blocked effect.
    JEL: C72 C78 C91 D91
    Date: 2021–08
  5. By: Kundu, Rajendra P. (Centre for Economic Studies and Planning, School of Social Sciences, Jawaharlal Nehru University); Pandey, Siddhigyan (Jindal School of Liberal Arts and Humanities, O.P. Jindal Global University)
    Abstract: In this paper we consider an n-player simultaneous move game on a fixed network, in which each player chooses her investment level in each of m goods that are non-rivalrous and non-excludable across links in the network. We analyze the existence, stability and welfare properties of PSNEs of the game. Our results demonstrate that while every game necessarily has a specialized equilibrium, the stability of equilibrium profiles and the existence of specialized equilibria in which specialization is dispersed depend crucially on the network structure. We also provide some interesting welfare implications relating to concentration of specialization.
    Date: 2021–08
  6. By: Mikhail Zhitlukhin
    Abstract: We construct a diffusion approximation of a repeated game in which agents make bets on outcomes of i.i.d. random vectors and their strategies are close to an asymptotically optimal strategy. This model can be interpreted as trading in an asset market with short-lived assets. We obtain sufficient conditions for a strategy to maintain a strictly positive share of total wealth over the infinite time horizon. For the game with two players, we find necessary and sufficient conditions for the wealth share process to be transient or recurrent in this model, and also in its generalization with Markovian regime switching.
    Date: 2021–08
  7. By: Hamed Amini; Maxim Bichuch; Zachary Feinstein
    Abstract: In this paper, we construct a decentralized clearing mechanism which endogenously and automatically provides a claims resolution procedure. This mechanism can be used to clear a network of obligations through blockchain. In particular, we investigate default contagion in a network of smart contracts cleared through blockchain. In so doing, we provide an algorithm which constructs the blockchain so as to guarantee the payments can be verified and the miners earn a fee. We, additionally, consider the special case in which the blocks have unbounded capacity to provide a simple equilibrium clearing condition for the terminal net worths; existence and uniqueness are proven for this system. Finally, we consider the optimal bidding strategies for each firm in the network so that all firms are utility maximizers with respect to their terminal wealths. We first look for a mixed Nash equilibrium bidding strategies, and then also consider Pareto optimal bidding strategies. The implications of these strategies, and more broadly blockchain, on systemic risk are considered.
    Date: 2021–09
  8. By: Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University); Jian Song (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
    Abstract: We extend the war of attrition by studying a three-period dynamic contest game. In our game, players can fight against their opponents at certain period of the contest and can flee at any time. Waiting is costly. We focus on the role of waiting costs and show that the value of waiting costs is a key factor in determining the type of equilibrium in such dynamic contests. Specifically, as waiting costs increase, contests end earlier, battles are less likely to occur, and the weaker player in a pair is more likely to flee. A lab experiment verifies most key features of our model. However, unlike theoretical predictions, we find that as waiting costs increase, the duration of contests and the frequency of battles fail to drop as significantly as theory predicted. Moreover, we find that in each treatment, individual players exit the contest significantly earlier than predicted.
    Keywords: Dynamic contest, Waiting cost, Frequency of battles, Lab experiment
    JEL: D82 D90 C90
    Date: 2021–08
  9. By: Alberto Palermo (Institute for Labour Law and Industrial Relations in the European Union (IAAEU), Trier University); Clemens Buchen (WHU – Otto Beisheim School of Management)
    Abstract: We relax the common assumption of homogeneous beliefs in principal-agent relationships with adverse selection. Principals are competitors in the product market and write contracts also on the base of an expected aggregate. The model is a version of a cobweb model. In an evolutionary learning set-up, which is imitative, principals can have different beliefs about the distribution of agents' types in the population. The resulting nonlinear dynamic system is studied. Convergence to a uniform belief depends on the relative size of the bias in beliefs.
    Keywords: Evolutionary game theory, imitation equilibrium, heterogeneous beliefs, adverse selection, cobweb model
    JEL: C61 C73 D82 D83 E32
    Date: 2021–03
  10. By: Holden, Stein T. (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tilahun, Mesfin (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: The risky investment game of Gneezy and Potters (1997) has been a popular tool used to estimate risk tolerance and myopic loss aversion. Holden and Tilahun (2021) tested and found that the simple one-shot version of this game that is attractive as a simple tool to elicit risk tolerance among respondents with limited education, produce significant endowment effects in two variants of the game where alternatively safe and risky initial monetary endowments are allocated. In this paper, we use an alternative treatment that does not induce endowment effects. This allows us to establish a benchmark to assess the relative size of the endowment effects when initial safe and risky endowments are provided (contribution 1). While Prospect Theory could predict endowment effects in the game, it fails to explain the dominance of interior choices (partial investment). We propose an alternative endowment effect theory that gives predictions that are more consistent with the observed partial investment behavior (contribution 2).
    Keywords: Risky investment game; Endowment effects; Loss aversion; Utility curvature; Field experiment; Ethiopia
    JEL: C93 D91 H23
    Date: 2021–09–02
  11. By: Bradley Larsen; Joachim Freyberger
    Abstract: This study provides a structural analysis of detailed, alternating-offer bargaining data from eBay, deriving bounds on buyers and sellers private value distributions using a range of assumptions on behavior. These assumptions range from very weak (assuming only that acceptance and rejection decisions are rational) to less weak (e.g., assuming that bargaining offers are weakly increasing in players' private values). We estimate the bounds and show what they imply for consumer negotiation behavior in theory and practice. For the median product, bargaining ends in impasses in 43% of negotiations even when the buyer values the good more than the seller.
    JEL: C57 C78 D47 D82 L81
    Date: 2021–08
  12. By: Albertazzi, Andrea; Ploner, Matteo; Vaccari, Federico
    Abstract: We perform a controlled experiment to study the welfare effects of competition in a strategic communication environment. Two equally informed senders with conflicting interests can misreport information at a cost that is increasing in the size of the lie. We compare a treatment where only one sender communicates with a treatment where both senders communicate simultaneously with a decision-maker. We find that the introduction of competition between senders decreases the welfare of all players. Competing senders reveal the truth less often and spend about twice the amount of resources to misreport information than their monopolistic counterpart. As a result, decision-makers take more informed choices when consulting one sender than when consulting both.
    Date: 2021–08–26
  13. By: Claire Rimbaud (Univ Lyon, Universite Lumiere Lyon 2, GATE UMR 5824, F-69130 Ecully, France, France); Alice Soldà (Heidelberg University, Department of Economics, Bergheimer Str. 20, 69115 Heidelberg, Germany.)
    Abstract: Pro-social individuals face a trade-off between their monetary and moral motives. Hence, they may be tempted to exploit the uncertainty in their decision environment in order to reconcile this trade-off. In this paper, we investigate whether individuals with belief-dependent preferences avoid the monetary cost of behaving according to their moral standards by strategically acquiring information about others'expectations. We test the predictions of an information acquisition model in an online experiment. We use a modified trust-game in which we introduce uncertainty about the second movers' beliefs about first-movers' expectations. Our design enables to (i) identify participants with belief-based preferences and (ii) investigate their information acquisition strategy.Consistent with our predictions of subjective preferences, we find that most individuals classified as belief-dependent strategically select their source of information to avoid the cost of their conscience.
    Keywords: Belief-dependent preferences, illusory preferences, information acquisition, self-serving biases, experiment
    JEL: C91
    Date: 2021
  14. By: Alexander J. Stewart; Antonio A. Arechar; David G. Rand; Joshua B. Plotkin
    Abstract: The spread of misinformation and "fake news" continues to be a major focus of public concern. A great deal of recent research has examined who falls for misinformation and why, and what can be done to make people more discerning consumers of news. Comparatively little work, however, has considered the choices of those who produce misinformation, and how these choices interact with the psychology of news consumers. Here we use game-theoretic models to study the strategic interaction between news publishers and news readers. We show that publishers who seek to spread misinformation can generate high engagement with falsehoods by using strategies that mix true and false stories over time, in such a way that they serve more false stories to more loyal readers. These coercive strategies cause false stories to receive higher reader engagement than true stories - even when readers strictly prefer truth over falsehood. In contrast, publishers who seek to promote engagement with accurate information will use strategies that generate more engagement with true stories than with false stories. We confirm these predictions empirically by examining 1,000 headlines from 20 mainstream and 20 fake news sites, comparing Facebook engagement data with 20,000 perceived accuracy ratings collected in a survey experiment. We then use our model to analyze possible ways to disincentivize fake news, finding that reducing the capacity of news sources to microtarget readers, and increasing readers' level of attention, reduces the efficacy of coercion. Finally, we show that if a publisher incorrectly assumes that readers prefer falsehoods, their resulting publication strategy can manufacture greater engagement with false news - leading to a self-reinforcing cycle of false news promotion.
    Date: 2021–08
  15. By: Prüfer, Jens (Tilburg University, Center For Economic Research); Xu, Y. (Tilburg University, Center For Economic Research)
    Keywords: intrinsic motivation; Altruism; beliefs; nonprofit; nonprofit sector; NGOs; charities; self deception
    Date: 2021

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