nep-gth New Economics Papers
on Game Theory
Issue of 2021‒11‒15
fourteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Intelligence Disclosure and Cooperation in Repeated Interactions By Marco Lambrecht; Eugenio Proto; Aldo Rustichini; Andis Sofianos
  2. Going... going... wrong: a test of the level-k (and cognitive hierarchy) models of bidding behaviour By Itzhak Rasooly
  3. Intelligence promotes cooperation in long-term interaction: Experimental evidence in infinitely repeated public goods games By Tetsuya Kawamura; Tiffany Tsz Kwan Tse
  4. Rationality in games and institutions By Van Basshuysen, Philippe
  5. Expert-based Knowledge: Communicating over Scientific Models By Colo, Philippe
  6. Callable convertible bonds under liquidity constraints By David Hobson; Gechun Liang; Haodong Sun
  7. Marginal Productivity and Coalition Formation with Distributive Norms By Hideaki Goto
  8. Optimism leads to optimality: Ambiguity in network formation By Bayer, Peter; Guerdjikova, Ani
  9. Clubs and Networks By Ding, S.; Dziubinski, M.; Goyal, S.
  10. Third-Degree Price Discrimination in Oligopoly When Markets Are Covered By Dertwinkel-Kalt, Markus; Wey, Christian
  11. Political Competition with Endogenous Party Formation and Citizen Activists By Emanuel Hansen
  12. Stability in Matching with Externalities: Pairs Competition and Oligopolistic Joint Ventures By Kenzo Imamura; Hideo Konishi; Chen-Yu Pan
  13. Strategic Delegation in the Formation of Modest International Environmental Agreements By Spycher, Sarah; Winkler, Ralph
  14. Assortative Matching with Externalities and Farsighted Agents By Kenzo Imamura; Hideo Konishi

  1. By: Marco Lambrecht; Eugenio Proto; Aldo Rustichini; Andis Sofianos
    Abstract: We investigate in a laboratory setting whether revealing information on intelligence affects behavior in games with repeated interactions. In our experimental design we communicate information on the cognitive ability of both players. We use three stage games: Prisoners’ Dilemma (PD) and two versions of Battle of Sexes (BoS), with high and low payoff inequality. We find that the information affects strategic behavior significantly in two distinct ways. In PD, disclosure markedly hampers cooperation, as higher intelligence players are less cooperative once they are made aware that they play against someone of lower ability than themselves in the disclosure treatment. Similarly, in BoS with low payoff inequality, disclosure disrupts coordination on outcomes with positive payoffs, as higher intelligence players try to force their most preferred outcome onto the less intelligent. However, in BoS with high payoff inequality, this pattern of behavior dramatically changes. Disclosure does not significantly affect coordination rates. Differently from the low payoff inequality game, coordination is achieved more often on outcomes that favour less intelligent players. We conjecture that when coordination becomes more difficult, because of the high inequality between payoffs, intelligence and inequality together form a coordination device.
    Keywords: repeated prisoners dilemma, cooperation, intelligence, IQ
    JEL: C73 C91 C92 D83
    Date: 2021
  2. By: Itzhak Rasooly
    Abstract: In this paper, we design and implement an experiment aimed at testing the level-k model of auctions. We begin by asking which (simple) environments can best disentangle the level-k model from its leading rival, Bayes-Nash equilibrium. We find two environments that are particularly suited to this purpose: an all-pay auction with uniformly distributed values, and a first-price auction with the possibility of cancelled bids. We then implement both of these environments in a virtual laboratory in order to see which theory can best explain observed bidding behaviour. We find that, when plausibly calibrated, the level-k model substantially under-predicts the observed bids and is clearly out-performed by equilibrium. Moreover, attempting to fit the level-k model to the observed data results in implausibly high estimated levels, which in turn bear no relation to the levels inferred from a game known to trigger level-k reasoning. Finally, subjects almost never appeal to iterated reasoning when asked to explain how they bid. Overall, these findings suggest that, despite its notable success in predicting behaviour in other strategic settings, the level-k model (and its close cousin cognitive hierarchy) cannot explain behaviour in auctions.
    Date: 2021–11
  3. By: Tetsuya Kawamura; Tiffany Tsz Kwan Tse
    Abstract: A growing body of literature in experimental economics examines how cognitive ability affects cooperation in social dilemma settings. We contribute to the existing literature by studying this relationship in a more complex and strategic environment when the number of partners increases in an infinitely repeated public goods game. We designed four treatments with different continuation probability under two conditions: whether cooperation can be sustained as risk dominance or not. We asked participants to decide whether to cooperate in every period in the first five rounds. They were further asked to decide if they should elicit their strategy at the beginning of each super game using the strategy method in the last five rounds. We found that participants with greater cognitive abilities cooperated more (less) when cooperation could(not) be sustained as risk dominance. A similar trend was observed in the frequency of fully cooperative strategies. We also found that participants with greater cognitive abilities employed lenient and forgiving strategies more frequently when the continuation probability was far higher than the risk dominant threshold level.
    Date: 2021–10
  4. By: Van Basshuysen, Philippe
    Abstract: Against the orthodox view of the Nash equilibrium as “the embodiment of the idea that economic agents are rational” (Aumann, 1985, p 43), some theorists have proposed ‘non-classical’ concepts of rationality in games, arguing that rational agents should be capable of improving upon inefficient equilibrium outcomes. This paper considers some implications of these proposals for economic theory, by focusing on institutional design. I argue that revisionist concepts of rationality conflict with the constraint that institutions should be designed to be incentive-compatible, that is, that they should implement social goals in equilibrium. To resolve this conflict, proponents of revisionist concepts face a choice between three options: (1) reject incentive compatibility as a general constraint, (2) deny that individuals interacting through the designed institutions are rational, or (3) accept that their concepts do not cover institutional design. I critically discuss these options and I argue that a more inclusive concept of rationality, e.g. the one provided by Robert Sugden’s version of team reasoning, holds the most promise for the non-classical project, yielding a novel argument for incentive compatibility as a general constraint.
    Keywords: concept formation; game theory; institutional design; rationality; Robert Sugden; team reasoning
    JEL: J1
    Date: 2021
  5. By: Colo, Philippe
    Abstract: Scientific models structure our perception of reality. This paper studies how we choose among them under expert advise. Scientific models are formalised as probability distributions over possible scenarios. An expert is assumed to know the most likely model and seeks to communicate it to a decision maker, but cannot prove it. As a result, communication is a cheap talk game over models. The decision maker is in a situation of model-uncertainty and is ambiguity sensitive. I show that information transmission depends on the strategic misalignment of players and, unlike similar models in the literature, a form of consensus among scientific models. When science is divided, there is an asymmetry in information transmission when the receiver has maxmin expected utility preferences. No information can be conveyed over models above a certain threshold. All equilibria of the game are outcome equivalent to a partitional equilibria and the most informative one is interim Pareto dominant.
    Keywords: Ambiguity, cheap talk
    JEL: C72 D81 D83
    Date: 2021–10–13
  6. By: David Hobson; Gechun Liang; Haodong Sun
    Abstract: This paper provides a complete solution to the callable convertible bond studied in [Liang and Sun, Dynkin games with Poisson random intervention times, SIAM Journal on Control and Optimization, 57(4), 2962--2991, 2019], and corrects an error in Proposition 6.2 of that paper. The callable convertible bond is an example of a Dynkin game, but falls outside the standard paradigm since the payoffs do not depend in an ordered way upon which agent stops the game. We show how to deal with this non-ordered situation by introducing a new technique which may of interest in its own right, and then apply it to the bond problem.
    Date: 2021–11
  7. By: Hideaki Goto (IUJ Research Institutey, International University of University)
    Abstract: This paper analyzes coalition formation under constant, decreasing, and increasing marginal productivity when the total surplus jointly produced by individuals with heterogeneous abilities can only be distributed to its members in egalitarian or meritocratic ways. When marginal productivity is decreasing or constant, the results are simple, as no coalition with multiple members is included in a stable coalition structure when marginal productivity is decreasing, whereas individuals are indifferent to which meritocratic coalition they belong, including singletons, in the case of constant marginal productivity. In contrast, if marginal productivity is increasing, stable structures differ considerably from those obtained by other models. A procedure to identify stable structures is proposed, finding that multiple egalitarian coalitions can exist, each of which is always consecutive, but there is, at most, only one meritocratic coalition, which may or may not be consecutive, in stable structures. Moreover, the grand egalitarian coalition is only stable under certain conditions, whereas the grand meritocratic coalition is always stable.
    Keywords: Coalition formation; Egalitarianism; Meritocracy; Marginal productivity.
    JEL: C71 D71 D63 D30
    Date: 2021–11
  8. By: Bayer, Peter; Guerdjikova, Ani
    JEL: D85 D83
    Date: 2021
  9. By: Ding, S.; Dziubinski, M.; Goyal, S.
    Abstract: A recurring theme in the study of society is the concentration of influence and power that is driven through unequal membership of groups and associations. In some instances these bodies constitute a small world while in others they are fragmented into distinct cliques. This paper presents a new model of clubs and networks to understand the sources of individual marginalization and the origins of different club networks. In our model, individuals seek to become members of clubs while clubs wish to have members. Club value is increasing in its size and in the strength of ties with other clubs. We show that a stable membership profile exhibits marginalization of individuals and that this is generally not welfare maximizing. Our second result shows that if returns from strength of ties are convex (concave) then stable memberships support fragmented networks with strong ties (small worlds held together by weak ties). We illustrate the value of these theoretical results through case studies of inter-locking directorates, boards of editors of journals, and defence and R&D alliances.
    Date: 2021–10–25
  10. By: Dertwinkel-Kalt, Markus; Wey, Christian
    JEL: D43
    Date: 2021
  11. By: Emanuel Hansen
    Abstract: This paper studies the effects of endogenous party formation on political platforms. It develops a model in which parties allow like-minded citizens to, first, share the cost of running in a public election and, second, coordinate on a policy platform. The paper characterizes the set of political equilibria with two competing parties and with one uncontested party. In two-party equilibria, the distance between both platforms is always positive but limited, in contrast to the median voter model and the citizen candidate model. In one-party equilibria, the median voter can be worse off than in all equilibria with two competing parties.
    Keywords: elections, party formation, platform choice, electoral uncertainty
    JEL: D71 D72
    Date: 2021
  12. By: Kenzo Imamura (University of Tokyo Market Design Center); Hideo Konishi (Boston College); Chen-Yu Pan (National Chengchi University, Taiwan)
    Abstract: This paper presents one-to-one matching and assignment problems with externalities across pairs such as pairs figure skating competition and joint ventures in oligopolistic markets. In these models, players care not only about their partners but also which and how many rival pairs are formed. Thus, it is important for a deviating pair to know which matching will realize after it deviates from a matching (an effectiveness function) in order to define pairwise stable matching. Using a natural effectiveness function for such environments, we show that the assortative matching is pairwise stable. We discuss two generalizations of our model including intrinsic preferences on partners and pair-specific match qualities to see how our stability concept performs in these generalized models.
    Keywords: one-to-one matching, matching with externalities, pairwise stable matching, coalition formation, group contest, joint ventures, myopia, farsightedness.
    JEL: C7 D71 D72
    Date: 2021–11–04
  13. By: Spycher, Sarah; Winkler, Ralph
    JEL: Q58
    Date: 2021
  14. By: Kenzo Imamura (University of Tokyo Market Design Center); Hideo Konishi (Boston College)
    Abstract: We consider a one-to-one assortative matching problem in which matched pairs compete for a prize. With such externalities, the standard solution concept, pairwise stable matching, may not exist. In this paper, we consider farsighted agents and analyze the largest consistent set (LCS) of Chwe (1994). Despite the assortative structure of the problem, LCS tend to be large with the standard effectiveness functions: LCS can be the set of all matchings, including an empty matching with no matched pair. By modifying the effectiveness function motivated by Knuth (1976), LCS becomes a singleton of the positive assortative matching. Our results suggest that the choice of effectiveness function can significantly impact the solution in a matching problem with externalities.
    Keywords: group contest, pairwise stable matching, assortative matching, farsightedness, largest consistent set, effectiveness function
    JEL: C7 D71 D72
    Date: 2021–11–04

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