nep-gth New Economics Papers
on Game Theory
Issue of 2021‒10‒04
twenty-one papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Aggregation in Networks By Nizar Allouch
  2. Truth, Honesty, and Strategic Interactions By Bernabe, Angelique; Hossain, Tanjim; Yu, Haomiao
  3. Economic foundations of generalized games with shared constraint: Do binding agreements lead to less Nash equilibria? By Yann BRAOUEZEC; Keyvan KIANI
  4. Characterizing and Computing the Set of Nash Equilibria via Vector Optimization By Zachary Feinstein; Birgit Rudloff
  5. A Nash Equilibrium for Differential Games with Moving-horizon Strategies By Enrico Saltari; Willi Semmler; Giovanni Di Bartolomeo
  6. The Key Class in Networks By Nizar Allouch; Jayeeta Bhattacharya
  7. A dynamic theory of spatial externalities By Boucekkine, R.; Fabbri, G.; Federico, S.; Gozzi, F.
  8. Robust Equilibria in General Competing Mechanism Games By Seungjin Han
  9. Money and cooperation in small communities By So Kubota
  10. Formal insurance and altruism networks By Tizié Bene; Yann Bramoullé; Frédéric Deroïan
  11. "A Mean Field Game Approach to Equilibrium Pricing with Market Clearing Condition" By Masaaki Fujii; Akihiko Takahashi
  12. Reciprocity in Dictator Games: An Experimental Study By Luciano Andreozzi; Marco Faillo; Ali Seyhun Saral
  13. Measuring corruption in the field using behavioral games By Alex Armand; Alexander Coutts; Pedro C. Vicente; Ines Vilela
  14. Unstable diffusion in social networks By Teruyoshi Kobayashi; Yoshitaka Ogisu; Tomokatsu Onaga
  15. River pollution abatement: A decentralized solution through smart contracts By Jens Gudmundsson; Jens Leth Hougaard
  16. Fairness Concerns and Job Assignment to Positions with Different Surplus By Danková, Katarína; Morita, Hodaka; Servátka, Maroš; Zhang, Le
  17. Resource sharing on endogenous networks By Philip Solimine; Luke Boosey
  18. Lack of Control: An experiment By Prissé, Benjamin; Jorrat, Diego
  19. Will banks introduce negative interest rates to household deposits? A game-theoretical model By Sebastiaan Wijsman
  20. Unilateral Sharing of Customer Data for Strategic Purposes By Chongwoo Choe; Jiajia Cong; Chengsi Wang
  21. The informational value of environmental taxes By Stefan Ambec; Jessica Coria

  1. By: Nizar Allouch
    Abstract: In this paper, we show that a concept of aggregation can hold in large network games with linear best replies. Breaking up large networks into smaller subnetworks, which can be replaced by representative players, leads to a coarse-grained description of strategic interactions. This method of summarizing complex strategic interactions by simple ones can be applied to compute all Nash equilibria for the special network structure of cograph. A key finding is that a stable Nash equilibrium of the large network game can be decomposed into a collection of Nash equilibria of subnetwork games. Thereby, we establish a systematic relationship between player’s position in a subnetwork and his equilibrium action in the large network game.
    Keywords: aggregation; modular decomposition; network games; public goods; stability
    JEL: C72 D31 D85 H41
    Date: 2021–07
  2. By: Bernabe, Angelique; Hossain, Tanjim; Yu, Haomiao
    Abstract: We experimentally investigate how introducing the concept of truth in the natural context of a game affects player behavior using two games. Two players simultaneously make reimbursement claims for a damaged product, where players' payoffs depend only on their claims but not on the true price. Both games are dominance-solvable, and one of them has a strictly dominant strategy equilibrium, which many participants easily identified. Yet, claims in our experiments are significantly affected by the price. Analyzing the role of truth on participants' choices, we show that one needs strategic considerations and preferences for honesty to explain the results.
    Keywords: Preference for Honesty, Truth-telling in Games, Traveler's Dilemma, Dominance-solvable Games, Strictly Dominant Strategy, Level-k thinking
    JEL: C72 C91 D03
    Date: 2021–09–29
  3. By: Yann BRAOUEZEC (IESEG School of Management, CNRS-LEM, UMR 9221, Paris campus, Socle de la Grande Arche, 1 Parvis de la Défense, 92044 Paris La Défense Cedex); Keyvan KIANI (IESEG School of Management, CNRS-LEM, UMR 9221, Paris campus, Socle de la Grande Arche, 1 Parvis de la Défense, 92044 Paris La Défense Cedex)
    Abstract: A generalized game is a situation in which interaction between agents occurs not only through their objective function but also through their strategy sets; the strategy set of each agent depends upon the decision of the other agents and is called the individual constraint. As opposed to generalized games with exogenous shared constraint literature pioneered by [Rosen, 1965], we take the individual constraints as the basic premises and derive the shared constraint generated from the individual ones, a set K. For a prole of strategies to be a Nash equilibrium of the game with individual constraints, it must lie in K. But if, given what the others do, each agent agrees to restrict her choice in K, something that we call an endogenous shared constraint, this mutual restraint may generate new Nash equilibria. It is the main result of this paper to show that the set of Nash equilibria in endogenous shared constraint contains the set of Nash equilibria in individual constraints. In particular, when there is no Nash equilibrium in individual constraints, there may still exist a Nash equilibrium in endogenous shared constraint and we give two economic applications of this to collective action problems (carb on emission and public good problems).
    Keywords: Generalized games, binding agreements, individual and shared constraints, collective action problems
    Date: 2021–09
  4. By: Zachary Feinstein; Birgit Rudloff
    Abstract: Nash equilibria and Pareto optimality are two distinct concepts when dealing with multiple criteria. It is well known that the two concepts do not coincide. However, in this work we show that it is possible to characterize the set of all Nash equilibria for any non-cooperative game as the Pareto optimal solutions of a certain vector optimization problem. To accomplish this task, we enlarge the objective function and formulate a non-convex ordering cone under which Nash equilibria are Pareto efficient. We demonstrate these results, first, for shared constraint games in which a joint constraint is applied to all players in a non-cooperative game. This result is then extended to generalized Nash games, where we deduce two vector optimization problems providing necessary and sufficient conditions, respectively, for generalized Nash equilibria. Finally, we show that all prior results hold for vector-valued games as well. Multiple numerical examples are given and demonstrate the computational advantages of finding the set of Nash equilibria via our proposed vector optimization formulation.
    Date: 2021–09
  5. By: Enrico Saltari; Willi Semmler; Giovanni Di Bartolomeo
    Abstract: Our paper aims at introducing a moving-horizon interaction in a strategic context. We assume that, in each instant of time, players can predict the effects of their actions and those of their opponents on a finite moving horizon. We define an equilibrium concept which is consistent in this setting and develop an appropriate algorithm to compute it by using nonlinear model predictive control techniques. Focusing on the length of forecasting horizon, we propose two economic interpretations for our equilibrium, based on the limited rationality and political economy literature.To provide some practical insights of our approach, we consider a debt stabilization game in a monetary union.
    Keywords: Strategic interactions; Non–linear models; Model predictive control; Fiscal and monetary policy; Public debt
    JEL: C61 C72
    Date: 2021–09
  6. By: Nizar Allouch; Jayeeta Bhattacharya
    Abstract: This paper proposes new centrality measures to characterise the `key class', when agents in a network are sorted into role-equivalent classes, such that its removal results in an optimal change in the network activity. The notion of role-equivalence is defined through the graph-theoretical concept of equitable partition of networks, which finds wide empirical and theoretical applicability. Players in the network engage in a non-cooperative game with local payoff complementarities. We establish a link between the generic network and its partitioned or quotient graph, and use it to relate the Nash equilibrium activity of classes with their position within the partitioned network. The result informs two class-based centrality measures that geometrically characterise the key class for an optimal reduction (or increase) in the aggregate and the per-capita network activity, respectively.
    Keywords: Social and economic networks; network games; equitable partition; centrality measures
    JEL: C72 D85
    Date: 2021–08
  7. By: Boucekkine, R.; Fabbri, G.; Federico, S.; Gozzi, F.
    Abstract: This work targets the class of spatiotemporal problems with free riding under natural (pollution, epidemics...etc) diffusion and spatial externalities. Such a class brings to study a family of differential games in continuous time and space. In the fundamental pollution free riding problem we develop a strategy to solve completely the associated game contributing to the associated debate on environmental federalism. We depart from the preexisting literature in several respects. First, instead of assuming ad hoc pollution diffusion schemes across space, we consider a realistic spatiotemporal law of motion for pollution (diffusion and advection). Second, we tackle spatiotemporal non-cooperative (and cooperative) differential games instead of static games in the related literature. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is innite. Third, we allow for a rich set of geographic heterogeneities across states while the literature assumes identical states. We solve analytically the induced non-cooperative differential game under decentralization and fully characterize the resulting long-term spatial distributions. In particular, we prove that there exist a Perfect Markov Equilibrium, unique among the class of the affine feedbacks. We further provide with full exploration of the free riding problem, reected in the so-called border effects. Finally, we explore how geographic discrepancies (the most elementary being the asymmetry of players) affect the shape of the border effects. We check in particular that our model is consistent with the set of stylized facts put forward by the related empirical literature.
    JEL: Q53 R12 O13 C72 C61 O44
    Date: 2021
  8. By: Seungjin Han
    Abstract: This paper proposes a general competing mechanism game of incomplete information where a mechanism allows its designer to send a message to himself at the same time agents send messages. This paper introduces a notion of robust equilibrium. If each agent's payoff function is separable with respect to principals' actions, they lead to the full characterization of equilibrium allocations in terms of incentive compatible direct mechanisms without reference to the set of arbitrary mechanisms allowed in the game. Szentes' Critique (Szentes (2010)) on the standard competing mechanism game of complete information is also valid in a model with incomplete information.
    Date: 2021–09
  9. By: So Kubota (Faculty of Political Science and Economics, Waseda University, 1-6-1 Nishiwaseda Shinjuku-ku, Tokyo 169-8050, Japan.)
    Abstract: In this note, I investigate the circulation of money in small communities. I build a two-player repeated gift-giving game and then show that players can sustain coopera- tion by using money. An ecient outcome is obtained when players are able to hold multiple units of currency.
    Keywords: primitive money, repeated game.
    JEL: C73 E42 N10
    Date: 2021–09
  10. By: Tizié Bene (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France); Frédéric Deroïan (Aix-Marseille Univ, CNRS, AMSE, Marseille, France)
    Abstract: We study how altruism networks affect the adoption of formal insurance. Agents have private CARA utilities and are embedded in a network of altruistic relationships. Incomes are subject to both a common shock and a large idiosyncratic shock. Agents can adopt formal insurance to cover the common shock. We show that ex-post altruistic transfers induce interdependence in ex-ante adoption decisions. We characterize the Nash equilibria of the insurance adoption game. We show that adoption decisions are substitutes and that the number of adopters is unique in equilibrium. The demand for formal insurance is lower with altruism than without at low prices, but higher at high prices. Remarkably, individual incentives are aligned with social welfare. We extend our analysis to CRRA utilities and to a fixed utility cost of adoption.
    Keywords: formal insurance, informal transfers, altruism networks
    JEL: C72 D85
    Date: 2021–09
  11. By: Masaaki Fujii (Faculty of Economics, The University of Tokyo); Akihiko Takahashi (Faculty of Economics, The University of Tokyo)
    Abstract: In this work, we study an equilibrium-based continuous asset pricing problem which seeks to form a price process endogenously by requiring it to balance the ow of sale-and-purchase orders in the exchange market, where a large number of agents 1≤i≤N are interacting through the market price. Adopting a mean field game (MFG) approach, we find a special form of forward-backward stochastic differential equations of McKean-Vlasov type with common noise whose solution provides an approximate of the market price. We show the convergence of the net order flow to zero in the large N-limit and get the order of convergence in N under some conditions. An extension of the model to a setup with multiple populations, where the agents within each population share the same cost and coefficient functions but they can be different population by population, is also discussed.
    Date: 2021–09
  12. By: Luciano Andreozzi; Marco Faillo; Ali Seyhun Saral
    Abstract: When decisions are made before roles are assigned, the Dictator Game is strategically equivalent to a linear Public Goods Game. This suggests that, when played between individuals with the same income, the prosocial behavior observed may be attributed at least in part to reciprocal altruism. Dictators transfer money only because they believe Recipients would transfer money as well, if roles were reversed. By contrast, when the game is played between individuals with different background income, the generosity of the rich towards the poor is more easily attributed to pure, non-reciprocal altruism. We test this hypothesis by eliciting conditional preferences for giving in a Dictator Game in two treatments. In the first students are matched with other students, while in the second students are matched with subjects living in a refugee camp in Uganda. We find that our predictions are only partially borne out by the data. Whether giving is directed to a person with similar or lower socioeconomic status, most subjects reveal conditionally altruistic preferences. Unconditional altruism is virtually absent in both treatments. These counter-intuitive results have important implications for the experimental elicitation of social preferences.
    Keywords: altruism, dictator game, reciprocity, social preferences, socioeconomic status
    Date: 2021
  13. By: Alex Armand; Alexander Coutts; Pedro C. Vicente; Ines Vilela
    Abstract: Corruption is often harmful for economic development, yet it is difficult to measure due to its illicit nature. We propose a novel corruption game to characterize the interaction between actual political leaders and citizens, and implement it in Northern Mozambique. Contrary to the game-theoretic prediction, both leaders and citizens engage in corruption. Importantly, corruption in the game is correlated with real-world corruption by leaders: citizens send bribes to leaders whom we observe appropriating community money, and these leaders are likely to reciprocate the bribes. In corrupt behavior, we identify an important trust dimension captured by a standard trust game.
    Keywords: Corruption, game, trust, lab-in-the-field, citizen, political leader, incentives, behavior, elite capture
    JEL: D10 D70 D72 D73 C90
    Date: 2021
  14. By: Teruyoshi Kobayashi; Yoshitaka Ogisu; Tomokatsu Onaga
    Abstract: How and to what extent will new activities spread through social ties? Here, we develop a more sophisticated framework than the standard mean-field approach to describe the diffusion dynamics of multiple activities on complex networks. We show that the diffusion of multiple activities follows a saddle path and can be highly unstable. In particular, when the two activities are sufficiently substitutable, either of them would dominate the other by chance even if they are equally attractive ex ante. When such symmetry-breaking occurs, any average-based approach cannot correctly calculate the Nash equilibrium - the steady state of an actual diffusion process.
    Date: 2021–09
  15. By: Jens Gudmundsson (Department of Food and Resource Economics, University of Copenhagen); Jens Leth Hougaard (Department of Food and Resource Economics, University of Copenhagen)
    Abstract: In river systems, costly upstream pollution abatement creates downstream welfare gains. Absent adequate agreement on how to share the gains, upstream regions lack incentives to reduce pollution levels. We develop a model that makes explicit the impact of water quality on production benefits and suggest a solution for sharing the gains of optimal pollution abatement, namely the Shapley value of an underlying convex cooperative game. We provide a decentralized implementation through a smart contract to automate negotiations and payments. In effect, it ensures a socially optimal agreement supported by fair compensations to regions that turn to cleaner production from those that pollute.
    Keywords: River pollution, Decentralized mechanism, Shapley value, Water quality, Smart contracts
    JEL: C7 D47 D62 Q52 Q25
    Date: 2021–09
  16. By: Danková, Katarína; Morita, Hodaka; Servátka, Maroš; Zhang, Le
    Abstract: How does job assignment to positions with different surplus affect fairness concerns? We experimentally examine agents’ fairness concerns in a three-person ultimatum game in which all agents are asked to complete a general knowledge quiz before being assigned to a high-stake or low-stake position. We disentangle two possible channels through which job assignment impacts fairness concerns, wage differences and the principal’s intentions, by comparing cases in which the job assignment is determined randomly or by the principal. The knowledge quiz, which mimics performance evaluation, signifies the distinction between the two cases as it provides a basis on which the principal can make the assignment decision. We find that the principal’s intentions significantly impact fairness concerns of the agents assigned to the low-stake position, but wage differences themselves do not. We elaborate on managerial implications of our findings.
    Keywords: job assignment, fairness concerns, experiment, ultimatum game, wage differences, intentions
    JEL: C91 C92 J31 J71
    Date: 2021–09–30
  17. By: Philip Solimine; Luke Boosey
    Abstract: In this paper, we examine behavior in a voluntary resource sharing game that incorporates endogenous network formation; an incentive problem that is increasingly common in contemporary digital economies. Using a laboratory experimental implementation of repeated play in this information-rich decision setting, we examine the effects of a simple reputation feedback system on patterns of linking and contribution decisions. Reduced-form estimates find significant effects of the information treatment on a number of key outcomes such as efficiency, complementarity, and decentralization. To further understand the driving causes of these observed changes in behavior, we develop and estimate a discrete-choice framework, using computationally efficient panel methods to identify the structure of social preferences in this setting. We find that the information treatment focuses reciprocity, and helps players coordinate to reach more efficient outcomes.
    Date: 2021–09
  18. By: Prissé, Benjamin; Jorrat, Diego
    Abstract: We ran an experiment to study whether lack of control has an effect on experimental results. Subjects who were recruited following standard procedures completed the experiment online or in the laboratory. The experimental design is otherwise identical between conditions. Results suggest that there are no differences between conditions, except for a larger percentage of laboratory subjects donating nothing in the Dictator Game.
    Keywords: Time Preferences, CTB, Experiments.
    JEL: B41 C99
    Date: 2021–09–25
  19. By: Sebastiaan Wijsman
    Abstract: This paper presents a game-theoretical model to assess whether banks will introduce negative interest rates to household deposits. This is modelled as a game of incomplete information between two banks which can decrease their interest rates to enhance their interest margins. Savers can decide to stay at their bank, switch to another bank against switching costs, or to use their savings alternatively, such as for investments. We find that banks are more likely to decrease their interest rates if switching costs are higher and the alternatives for savings accounts are less attractive. Surprisingly, we also find that higher switching costs and less attractive alternatives are not necessarily beneficial for banks’ profitability. High switching costs hinder banks to attract savers from competitors and unattractive alternatives may lead to an expensive war of attrition between banks.
    Keywords: Retail banking, Bank interest margin, Low interest rate environment, Bank profitability, Switching behavior,, Bank competition
    Date: 2021–08–30
  20. By: Chongwoo Choe (Department of Economics, Monash University); Jiajia Cong (School of Management, Fudan University); Chengsi Wang (Department of Economics, Monash University)
    Abstract: We study how a data-rich firm can benefit by unilaterally sharing its customer data with a data-poor competitor when the data can be used for price discrimination. By sharing data on consumers that are more loyal to the competitor while keeping the data on the competitor's most loyal consumers to itself, the firm can induce the competitor to raise its price for consumers it does not have data on. This makes both firms better off than without data sharing.
    Keywords: customer data sharing, price discrimination
    JEL: L11 L13 L40 M30
    Date: 2021–09
  21. By: Stefan Ambec (TSE - Toulouse School of Economics - UT1 - Université Toulouse 1 Capitole - Université Fédérale Toulouse Midi-Pyrénées - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Jessica Coria (Unknown)
    Abstract: We propose informational spillovers as a new rationale for the use of multiple policy instruments to mitigate a single externality. We investigate the design of a pollution standard when the firms' abatement costs are unknown and emissions are taxed. A firm might abate pollution beyond what is required by the standard by equalizing its marginal abatement costs to the tax rate, thereby revealing information about its abatement cost. We analyze how a regulator can take advantage of this information to design the standard. In a dynamic setting,the regulator relaxes the initial standard in order to induce more information revelation, which would allow her to set a standard closer to the first best in the future. Updating standards, though, generates a ratchet effect since a lowcost firm might strategically hide its cost by abating no more than required by the standard. We characterize the optimal standard and its update across time depending on the firm's abatement strategy. We illustrate our theoretical results with the case of NOx regulation in Sweden. We find evidence that the firms that pay the NOx tax experience more frequent standard updates and more stringent revisions than those who are exempted.
    Keywords: Policy overlap,Multi-governance,Ratchet effect,Asymmetric information,Tax,Environmental policy,Pollution
    Date: 2021–07

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