nep-gth New Economics Papers
on Game Theory
Issue of 2021‒12‒13
eleven papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Social rationalizability with mediation By Herings, P. Jean-Jacques; Mauleon, Ana; Vannetelbosch, Vincent
  2. A Game Theoretic Analysis of Liquidity Events in Convertible Instruments By Ron van der Meyden
  3. An Experiment on Cooperation in a CPR Game with a Disapproval Option By Koffi Serge William Yao
  4. Profit-Sharing vs Price-Fixing Collusion with Heterogeneous Firms By Hattori, Keisuke
  5. An experiment on the Winter demand commitment bargaining mechanism By Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada
  6. Volatility-reducing biodiversity conservation under strategic interactions By Emmanuelle Augeraud-Véron; Giorgio Fabbri; Katheline Schubert
  7. The “Human Factor” in Prisoner’s Dilemma Cooperation By Iván Barreda-Tarrazona; Ainhoa Jaramillo-Gutiérrez; Marina Pavan; Gerardo Sabater-Grande
  8. Belief Convergence under Misspecified Learning: A Martingale Approach By Mira Frick; Ryota Iijima; Yuhta Ishii
  9. Social and Moral Distance in Risky Settings By Anastasios Koukoumelis; Maria Vittoria Levati; Chiara Nardi
  10. The Roots of Cooperation By Zvonimir Bašic; Parampreet Christopher Bindra; Daniela Glätzle-Rützler; Angelo Romano; Matthias Sutter; Claudia Zoller
  11. Enhancing spatial coordination in payment for ecosystem services schemes with non-pecuniary preferences By Laure Kuhfuss; Raphaële Préget; Sophie Thoyer; Frans de Vries; Nick Hanley

  1. By: Herings, P. Jean-Jacques (RS: GSBE Theme Data-Driven Decision-Making, RS: GSBE Theme Conflict & Cooperation, Microeconomics & Public Economics); Mauleon, Ana; Vannetelbosch, Vincent
    Abstract: We propose a solution concept for social environments called social rationalizability with mediation that identifies the consequences of common knowledge of rationality and farsightedness. In a social environment several coalitions may and could be willing to move at the same time. Individuals not only hold conjectures about the behaviors of other individuals but also about how a mediator is going to solve conflicts of interest. The set of socially rationalizable outcomes with mediation is shown to be non-empty for all social environments and it can be computed by an iterative reduction procedure. We show that social rationalizability with mediation does not necessarily satisfy coalitional rationality when the number of coalition members is greater than two.
    JEL: C70 C72 C78
    Date: 2021–12–02
  2. By: Ron van der Meyden
    Abstract: Convertible instruments are contracts, used in venture financing, which give investors the right to receive shares in the venture in certain circumstances. In liquidity events, investors may have the option to either receive back their principal investment, or to receive a proportional payment after conversion of the contract to a shareholding. In each case, the value of the payment may depend on the choices made by other investors who hold such convertible contracts. A liquidity event therefore sets up a game theoretic optimization problem. The paper defines a general model for such games, which is shown to cover all instances of the Y Combinator Simple Agreement for Future Equity (SAFE) contracts, a type of convertible instrument that is commonly used to finance startup ventures. The paper shows that, in general, pure strategy Nash equilibria do not necessarily exist in this model, and there may not exist an optimum pure strategy Nash equilibrium in cases where pure strategy Nash equilibria do exist. However, it is shown when all contracts are uniformly one of the SAFE contract types, an optimum pure strategy Nash equilibrium exists. Polynomial time algorithms for computing (optimum) pure strategy Nash equilibria in these cases are developed.
    Date: 2021–11
  3. By: Koffi Serge William Yao (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: This paper studies the standard version of the approval mechanism with two players in a common pool resource (CPR) extraction game. In the case of disapproval, the Nash extraction level is implemented. The paper investigates, experimentally, the extent to which the Nash threat leads to Pareto-improving extraction levels. Through our experiment, we confirm the effectiveness of the Nash threat in reducing CPR over-extraction. Although participants' behavior is mainly explained by rational thinking, inequity in payoff can also motivate their behavior. Moreover, we show that there is neither an order effect nor a framing effect. Finally, the reduction persists when the Nash threat is no longer in place.
    Keywords: laboratory group behavior,common pool resource,approval mechanism
    Date: 2021–10–26
  4. By: Hattori, Keisuke
    Abstract: This paper compares the profitability and sustainability between profit-sharing collusion with side payments and price-fixing collusion without side payments in a two-firm repeated Bertrand game when firms differ in both cost and discount factor. Although profit-sharing collusion yields larger joint profits, bargaining over collusive agreements makes heterogeneous firms prefer different types of collusion: a low-cost (high cost) firm is more likely to adhere to profit-sharing (price-fixing) collusion. If both firms have the same discount factor, profit-sharing collusion is more sustainable. However, price-fixing collusion can be the only sustainable collusion if the efficient firm is more patient than the inefficient firm. Furthermore, we extend profit-sharing collusion by incorporating side payments with different enforcement procedures (i.e., different timing of side payments) and different purposes: to reach agreement and to make the agreement sustainable. Our results provide a theoretical rationale for why firms fail or succeed at reaching and sustaining some forms of collusion.
    Keywords: Collusion; Asymmetric costs; Asymmetric discount factors; Side payments; Repeated game
    JEL: C73 C78 L13 L41
    Date: 2021–11–23
  5. By: Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada
    Abstract: In this paper we experimentally compare three implementations of Winter demand commitment bargaining mechanism: a one-period implementation, a two-period implementation with low and with high delay costs. Despite the different theoretical predictions, our results show that the three different implementations result in similar outcomes in all our domains of investigation, namely: coalition formation, alignment with the Shapley value prediction and axioms satisfaction. Our results suggest that a lighter bargaining implementation with only one period is often sufficient in providing allocations that sustain the Shapley value as appropriate cooperative solution concept, while saving unnecessary costs in terms of time and resources.
    Date: 2021–12
  6. By: Emmanuelle Augeraud-Véron (GREThA - Groupe de Recherche en Economie Théorique et Appliquée - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Giorgio Fabbri (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Katheline Schubert (PSE - Paris School of Economics - ENPC - École des Ponts ParisTech - ENS Paris - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique - EHESS - École des hautes études en sciences sociales - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: How can decentralized individual decisions inefficiently reduce the ability of biodiversity to mitigate ecological and environmental variability and then its "natural insurance" role? In this article we present a simple theoretical setup to address this question and to evaluate some policy options. We study a model of strategic competition among farmers for the conversion of a natural forest to agricultural land. Unconverted forest land allows to conserve biodiversity, which contributes to reducing the volatility of agricultural production. Agents' utility is given in terms of a Kreps Porteus stochastic differential utility capable of disentangling risk aversion and aversion to fluctuations. We characterize the land used by each farmer and her welfare at the Nash equilibrium, we evaluate the overexploitation of the land and the agents' welfare loss compared to the socially optimal solution and we study the drivers of the inefficiencies of the decentralized equilibrium. After characterizing the value of biodiversity in the model, we use it to obtain a decomposition which helps to study the policy implications of the model by identifying in which cases the allocation of property rights is preferable to the introduction of a tax on land conversion. Our results suggest that enforcing property rights is more relevant in case of stagnant economies while taxing land conversion may be more suited for rapidly developing economies.
    Keywords: Stochastic differential games,Recursive preferences,Land conversion,Insurance value,Biodiversity
    Date: 2021–08–25
  7. By: Iván Barreda-Tarrazona (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Ainhoa Jaramillo-Gutiérrez (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain); Marina Pavan (LEE & Economics Department, Universitat Jaume I, Castellón-Spain); Gerardo Sabater-Grande (LEE and Department of Economics, Universitat Jaume I, Castellón, Spain)
    Abstract: We design a rich setting to study cooperation in the finitely Repeated Prisoners’ Dilemma (RPD), controlling for beliefs, emotions, and personal characteristics. In the baseline, the subjects play one-shot and repeated games with other human subjects. In the treatment, participants play against an artificial intelligence (AI) trained upon data from the previous “all human” sessions to mimic human decisions. We design the experiment so that our sessions are homogeneous in terms of gender composition, altruism, and reasoning ability. In all games, we elicit players’ beliefs regarding cooperation using an incentive compatible method. Besides, after each individual decision, we collect self-reported information on the main reason for it (rational or emotional). We find that expectations of partner cooperation at the beginning of each task are not significantly different between treatments. Despite this, we observe that initial human cooperation is actually much higher with other humans than with an AI. Cooperation continues to be higher in all periods of the RPD tasks: cooperation rates range between 60% and 80% in the baseline, while they range between 20% and 40% in the AI treatment. Last, decisions appear to be less emotion-driven in the AI treatment. Lack of empathy with, rather than fear of, the machine seems to be driving the results.
    Keywords: cooperation, prisoner’s dilemma, artificial intelligence, experiment
    JEL: C91 C73
    Date: 2021
  8. By: Mira Frick (Cowles Foundation, Yale University); Ryota Iijima (Cowles Foundation, Yale University); Yuhta Ishii (Department of Economics at Pennsylvania State University)
    Abstract: We present an approach to analyze learning outcomes in a broad class of misspecified environments, spanning both single-agent and social learning. We introduce a novel "prediction accuracy" order over subjective models, and observe that this makes it possible to partially restore standard martingale convergence arguments that apply under correctly specified learning. Based on this, we derive general conditions to determine when beliefs in a given environment converge to some long-run belief either locally or globally (i.e., from some or all initial beliefs). We show that these conditions can be applied, first, to unify and generalize various convergence results in previously studied settings. Second, they enable us to analyze environments where learning is "slow," such as costly information acquisition and sequential social learning. In such environments, we illustrate that even if agents learn the truth when they are correctly specified, vanishingly small amounts of misspecification can generate extreme failures of learning.
    Keywords: Misspecified learning, Stability, Robustness, Berk-Nash equilibrium
    Date: 2020–05
  9. By: Anastasios Koukoumelis (Department of Economics, University of Bath); Maria Vittoria Levati (Department of Economics (University of Verona)); Chiara Nardi (Department of Economics (University of Verona))
    Abstract: Many socially desirable actions are subject to risk and occur in situations where the others are not anonymous. Assessing whether lower subject-subject anonymity affects behavior when outcomes are risky is likely important but has not been studied in depth so far. Herein, we provide evidence on this issue. In a series of allocation tasks, all of them variations of the dictator game, we systematically vary the party who is exposed to risk and manipulate recipient anonymity by reducing the social and/or moral distance between the two parties. We propose a model that extends previous work by allowing not only for ex ante and ex post fairness but also for altruism. The model is consistent with observed behavior. In particular, a reduction in social and moral distance significantly increases the likelihood of equal split and more than equal split choices.
    Keywords: Risk; Fairness; Altruism; Anonymity; Experiment
    JEL: C90 D63 D64 D81
    Date: 2021–12
  10. By: Zvonimir Bašic; Parampreet Christopher Bindra; Daniela Glätzle-Rützler; Angelo Romano; Matthias Sutter; Claudia Zoller
    Abstract: We study the development of cooperation in 929 young children, aged 3 to 6. In a unified experimental framework, we examine pre-registered hypotheses about which of three fundamental pillars of human cooperation – direct and indirect reciprocity, and third-party punishment – emerges earliest as a means to increase cooperation in a repeated prisoner’s dilemma game. We find that third-party punishment doubles cooperation rates in comparison to a control condition. Children also reciprocate others’ behavior, yet direct and indirect reciprocity do not increase overall cooperation rates. We also examine the influence of children’s cognitive skills and parents’ socioeconomic background on cooperation.
    Keywords: cooperation, reciprocity, third-party punishment, reputation, children, parents, cognitive abilities, socioeconomic status, prisoner’s dilemma game, experiment
    JEL: C91 C93 D01 D91 H41
    Date: 2021
  11. By: Laure Kuhfuss (The James Hutton Institute); Raphaële Préget (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Sophie Thoyer (CEE-M - Centre d'Economie de l'Environnement - Montpellier - UMR 5211 - UM - Université de Montpellier - CNRS - Centre National de la Recherche Scientifique - Montpellier SupAgro - Institut national d’études supérieures agronomiques de Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Frans de Vries (University of Stirling); Nick Hanley (University of St Andrews [Scotland])
    Abstract: he environmental benefits from Payment for Ecosystem Services (PES) schemes can often be enhanced if private land managers are induced to enrol land in a spatially coordinated manner. One incentive mechanism which has been proposed to achieve such spatial coordination is the agglomeration bonus, a two-part payment scheme which offers a pecuniary (financial) reward for decisions that lead to greater spatial coordination of enrolled land. However, farmers respond to a range of motives when deciding whether to participate in such schemes, including non-pecuniary motives such as a concern for the environment or social comparisons. This study implements a de-contextualised laboratory experiment to test the effectiveness of the agglomeration bonus when non-pecuniary motives are explicitly incorporated into the decision-making environment. We capture intrinsic preferences for the public good dimension of environmental improvement through a real donation to environmental charities and examine the relative impact of a group-ranking nudge. The experimental results show that the agglomeration bonus does indeed improve participation and spatial coordination when non-pecuniary motives are accounted for, but that its performance is not enhanced by the nudge.
    Keywords: Agglomeration Bonus,Coordination Games,Environmental Preferences,Laboratory Experiments,Social Comparison,Nudge,spatial Coordination
    Date: 2022–02

This nep-gth issue is ©2021 by Sylvain Béal. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.