nep-gth New Economics Papers
on Game Theory
Issue of 2021‒11‒22
ten papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Rational play in games: A behavioral approach By Giacomo Bonanno
  2. An Adaptive Model of Demand Adjustment in Weighted Majority Games By Maria Montero; Alex Possajennikov
  3. Without liberty and justice, what extremes to expect? Two contemporary perspectives By Miller, Marcus; Zissimos, Ben
  4. Fisheries Management in Congested Waters: A Game-Theoretic Assessment of the East China Sea By Michael Macgregor Perry
  5. Learning New Auction Format by Bidders in Internet Display Ad Auctions By Shumpei Goke; Gabriel Y. Weintraub; Ralph Mastromonaco; Sam Seljan
  6. Negotiating Networks in Oligopoly Markets for Price-Sensitive Products By Naman Shukla; Kartik Yellepeddi
  7. Taxing the Residual Profit of Multinational Enterprises: A Critique of Formulaic Apportionment and a Proposal By Wolfram F. Richter
  8. Contingent Reasoning and Dynamic Public Goods Provision By Evan M. Calford; Timothy N. Cason
  9. A Model of Challenge Funds: How Funding Availability and Selection Rigor Affect Project Quality By Raphael Boleslavsky; Bruce Carlin; Christopher Cotton
  10. Domestic Constraints in Crisis Bargaining By Liqun Liu

  1. By: Giacomo Bonanno (Department of Economics, University of California Davis)
    Abstract: We argue in favor of a departure from the standard equilibrium approach in game theory in favor of the less ambitious goal of describing only the actual behavior of rational players. We investigate the notion of rationality in behavioral models of extensive-form games (allowing for imperfect information), where a state is described in terms of a play of the game instead of a strategy profile. The players' beliefs are specified only at reached decision histories and are modeled as pre-choice beliefs, allowing us to carry out the analysis without the need for (objective or subjective) counterfactuals. The analysis is close in spirit to the literature on self-confirming equilibrium, but it does not rely on the notion of strategy. We also provide a characterization of rational play that is compatible with pure-strategy Nash equilibrium.
    Keywords: Rationality, extensive-form game, self-confirming equilibrium, Nash equilibrium, behavioral model
    JEL: C7
    Date: 2021–11–17
  2. By: Maria Montero (University of Nottingham); Alex Possajennikov (University of Nottingham)
    Abstract: This paper presents a simple adaptive model of demand adjustment in cooperative games, and analyzes this model in weighted majority games. In the model, a randomly chosen player sets his demand to the highest possible value subject to the demands of other coalitions members being satisfied. This basic process converges to the aspiration set. By introducing some perturbations into the process, we show that the set of separating aspirations, i.e. demand vectors in which no player is indispensable in order for other players to achieve their demands, is the one most resistant to mutations. We then apply the process to weighted majority games. We show that in symmetric majority games and in apex games the unique separating aspiration is the unique stochastically stable one.
    Keywords: demand adjustment, aspirations, stochastic stability
    Date: 2021–06
  3. By: Miller, Marcus (University of Warwick); Zissimos, Ben (Exeter University Business School)
    Abstract: From a wide-ranging historical survey, Acemoglu and Robinson conclude that the preservation of liberty depends on being in a ‘narrow corridor’ where there is a balance of power between the state and society. We first examine the support Binmore's game-theoretic treatment of Social Contracts provides for such a ‘narrow corridor’ of liberty and justice – and what extremes to expect without them. We also consider how the biological model of Competing Species helps to describe the dynamics of conflicting powers outside the narrow corridor– where, as in contemporary Russia and China, any Social Contracts that exist are neither free nor fair.
    Keywords: liberty ; social contracts ; repeated games ; Competing Species ; anarchy ; Despotism ; Neofeudalism JEL Classification: C70 ; C73 ; P00 ; Z13
    Date: 2021
  4. By: Michael Macgregor Perry
    Abstract: Fisheries in the East China Sea (ECS) face multiple concerning trends. Aside from depleted stocks caused by overfishing, illegal encroachments by fishermen from one nation into another's legal waters are a common occurrence. This behavior presumably could be stopped via strong monitoring, controls, and surveillance (MCS), but MCS is routinely rated below standards for nations bordering the ECS. This paper generalizes the ECS to a model of a congested maritime environment, defined as an environment where multiple nations can fish in the same waters with equivalent operating costs, and uses game-theoretic analysis to explain why the observed behavior persists in the ECS. The paper finds that nations in congested environments are incentivized to issue excessive quotas, which in turn tacitly encourages illegal fishing and extracts illegal rent from another's legal waters. This behavior couldn't persist in the face of strong MCS measures, and states are thus likewise incentivized to use poor MCS. A bargaining problem is analyzed to complement the noncooperative game, and a key finding is the nation with lower nonoperating costs has great leverage during the bargain.
    Date: 2021–10
  5. By: Shumpei Goke; Gabriel Y. Weintraub; Ralph Mastromonaco; Sam Seljan
    Abstract: We study actual bidding behavior when a new auction format gets introduced into the marketplace. More specifically, we investigate this question using a novel data set on internet display ad auctions that exploits a staggered adoption by different publishers (sellers) of first-price auctions (FPAs), in place for the traditional second-price auctions (SPAs). Event study regression estimates indicate a significant jump, immediately after the auction format change, in revenue per sold impression (price) of the treated publishers relative to that of control publishers, ranging from 35% to 75% of pre-treatment price levels of the treated group. Further, we observe that in later auction format changes the lift in price relative to SPAs dissipates over time, reminiscent of the celebrated revenue equivalence theorem. We take this as evidence of initially insufficient bid shading after the format change rather than an immediate shift to a new Bayesian Nash equilibrium. Prices then went down as bidders learned to shade their bids. We also show that bidders sophistication impacted their response to the auction format change. Our work constitutes one of the first field studies on bidders' responses to auction format changes, providing an important complement to theoretical model predictions. As such, it provides valuable information to auction designers when considering the implementation of different formats.
    Date: 2021–10
  6. By: Naman Shukla; Kartik Yellepeddi
    Abstract: We present a novel framework to learn functions that estimate decisions of sellers and buyers simultaneously in an oligopoly market for a price-sensitive product. In this setting, the aim of the seller network is to come up with a price for a given context such that the expected revenue is maximized by considering the buyer's satisfaction as well. On the other hand, the aim of the buyer network is to assign probability of purchase to the offered price to mimic the real world buyers' responses while also showing price sensitivity through its action. In other words, rejecting the unnecessarily high priced products. Similar to generative adversarial networks, this framework corresponds to a minimax two-player game. In our experiments with simulated and real-world transaction data, we compared our framework with the baseline model and demonstrated its potential through proposed evaluation metrics.
    Date: 2021–10
  7. By: Wolfram F. Richter
    Abstract: According to plans put forward by the OECD/G20 Inclusive Framework on BEPS, a share of residual profit earned by eligible MNEs is to be taxed by market jurisdictions. For this purpose, revenue-based formulaic apportionment of residual profit is proposed. This note argues against the use of a rule requiring the multilateral assessment of MNEs’ worldwide profit and recommends an alternative method of sharing taxing rights with market jurisdictions. The proposed method relies on unilateral profit splitting and is suggested by the application of Shapley value theory to the fair and equitable division of taxing rights between cooperating jurisdictions.
    Date: 2021
  8. By: Evan M. Calford; Timothy N. Cason
    Abstract: Individuals often possess private information about the common value of a public good. Their contributions toward funding the public good can therefore reveal information that is useful to others who are considering their own contributions. This experiment compares static and dynamic contribution decisions to determine how hypothetical contingent reasoning differs in dynamic decisions. The timing of individuals’ sequential contribution decisions is endogenous. Funding the public good is more efficient with dynamic than static decisions in equilibrium, but this requires decision-makers to understand that in the future they can learn from past events. Our results indicate that a substantial fraction of subjects appreciate the benefits of deferring choice to learn about and condition their behavior on the contribution decisions of others. Many subjects, however, exhibit a bias away from rational choices in the direction of Cursed equilibrium, and some appear to extract information only from prior, and not concurrent, behavior.
    Keywords: Cursed equilibrium; Voluntary contributions; Club goods; Laboratory experiment
    JEL: C91 D71 D91 H41
    Date: 2021–11
  9. By: Raphael Boleslavsky (University of Miami); Bruce Carlin (UCLA); Christopher Cotton (Queen's University)
    Abstract: Challenge funds (CF) induce competition between grant applicants as they develop proposals to address important social problems. We develop a game-theoretic model to study how funding availability and proof of concept requirements (e.g., pilots or other forms of early-stage screening) influence investments by applicants and the ultimate success of the CF. Larger budgets and more rigorous proof of concept requirements can reduce applicant investments and lead to less effective funding initiatives. The results show how the design of a CF affects the incentives of those competing for funding, and how the most effective CF design needs to carefully consider how the NGOs or researchers applying for funding will respond to a change in incentives. Otherwise, steps taken to improve the quantity or quality of funded projects can backfire and decrease overall funding effectiveness.
    Keywords: Challenge Funds, Grants, Project Evaluation, Pilot Studies, Funding Allocation, Evidence Based Funding
    JEL: D83 O22 O35 H57 H83 H87 H43
    Date: 2021–11
  10. By: Liqun Liu
    Abstract: I study how political bias and audience costs impose domestic institutional constraints that affect states' capacity to reach peaceful agreements during crises. With a mechanism design approach, I derive the "weighted budget constraint" as necessary for the existence of peaceful agreements. The derivation has two major implications. On the one hand, if war must be averted, then audience costs do not provide incentives for political leaders to communicate private information. The rationale is that, absent the risk of war, leaders will pool on the strategy that induces the maximum bargaining gains. On the other hand, political bias matters for the scope of peace because it alters a state's expected war payoff; war cannot be averted with probability one whenever two states of the highest types meet and find the war option preferable to peaceful outcomes.
    Date: 2021–10

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