nep-gth New Economics Papers
on Game Theory
Issue of 2022‒04‒11
fifteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Information Design in Concave Games By Yamashita, Takuro; Smolin, Alex
  2. Inequity Aversion and Limited Foresight in the Repeated Prisoner’s Dilemma By Teresa Backhaus; Yves Breitmoser
  3. Order of Commitments in Bayesian Persuasion with Partial-informed Senders By Shih-Tang Su; Vijay G. Subramanian
  4. Guilt Aversion in (New) Games:Does Partners’ Vulnerability Matter? By Giuseppe Attanasi; Claire Rimbaud; Marie Claire Villeval
  5. Games of Artificial Intelligence: A Continuous-Time Approach By Martino Banchio; Giacomo Mantegazza
  6. Market-Minded Informational Intermediary and Unintended Welfare Loss By Wenji Xu; Kai Hao Yang
  7. Loss Aversion and Conspicuous Consumption in Networks By Yann Bramoullé; Christian Ghiglino
  8. Artificial Intelligence and Auction Design By Martino Banchio; Andrzej Skrzypacz
  9. Splitting games over finite sets By Koessler, Frédéric; Laclau, Marie; Renault, Jérôme; Tomala, Tristan
  10. On market prices in double auctions By Simon Jantschgi; Heinrich H. Nax; Bary S. R. Pradelski; Marek Pycia
  11. Fees, incentives, and efficiency in large double auctions By Simon Jantschgi; Heinrich H. Nax; Bary S. R. Pradelski; Marek Pycia
  12. Rules and Commitment in Communications: An Experimental Analysis By Guillaume R. Fréchette; Alessandro Lizzeri; Jacopo Perego
  13. Revisiting the Effect of Trustworthy Face and Attractive Appearance on Trust and Trustworthiness Behavior By Ziyun Suo; Qinxin Guo; Junyi Shen
  14. Radicalization of Islam or Peddling Radicalism? Lessons from the French Experience By Azam, Jean-Paul; Ferret, Jérôme
  15. Information vs Competition : How Platform Design Affects Profits and Surplus By Piolatto, A.; Schuett, Florian

  1. By: Yamashita, Takuro; Smolin, Alex
    Abstract: We study information design in games with a continuum of actions such that the players’ payoffs are concave in their own actions. A designer chooses an information structure–a joint distribution of a state and a private signal of each player. The information structure induces a Bayesian game and is evaluated according to the expected designer’s payoff under the equilibrium play. We develop a method that facilitates the search for an optimal information structure, i.e., one that cannot be outperformed by any other information structure, however complex. We show an information structure is optimal whenever it induces the strategies that can be implemented by an incentive contract in a dual, principal-agent problem which aggregates marginal payoffs of the players in the original game. We use this result to establish the optimality of Gaussian information structures in settings with quadratic payoffs and a multivariate normally distributed state. We analyze the details of optimal structures in a differentiated Bertrand competition and in a prediction game.
    Keywords: Information design ; Bayesian persuasion ; Concave games ; Duality ; First-order approach
    JEL: D42 D82 D83
    Date: 2022–03–08
  2. By: Teresa Backhaus; Yves Breitmoser
    Abstract: Reanalyzing 12 experiments on the repeated prisoner’s dilemma (PD), we identify three distinct subject types: defectors, cautious cooperators and strong cooperators. The defectors defect with a high probability in every round. Both cooperating types play semigrim behavior strategies. This simple three-type mixture fits significantly better than any model consisting of combinations of (generalized) pure strategies from the literature, which we fitted at the treatment level (considering 1051 pure-strategy mixtures), even when we use constant specifications of the three types across all experiments. The three best fitting strategies vary slightly across experiments, however. Structurally analyzing these strategies, we find that subjects have limited foresight and subjectively assign utility values to the four states (cc,cd,dc,dd) of the supergame, which relate to the original stage-game payoffs in a manner compatible with inequity aversion. This subjectively transforms the prisoners dilemma game into a coordination game and can reliably explain the strategies used across all 12 experiments and 32 treatments.
    Keywords: Repeated game, Behavior, Tit-for-tat, Mixed strategy, Memory, Belief-free equilibrium, Laboratory experiment
    JEL: C72 C73 C92 D12
    Date: 2022–03
  3. By: Shih-Tang Su; Vijay G. Subramanian
    Abstract: The commitment power of senders distinguishes Bayesian persuasion problems from other games with (strategic) communication. Persuasion games with multiple senders have largely studied simultaneous commitment and signalling settings. However, many real-world instances with multiple senders have sequential signalling. In such contexts, commitments can also be made sequentially, and then the order of commitment by the senders -- the sender signalling last committing first or last -- could significantly impact the equilibrium payoffs and strategies. For a two-sender persuasion game where the senders are partially aware of the state of the world, we find necessary and sufficient conditions to determine when different commitment orders yield different payoff profiles. In particular, for the two-sender setting, we show that different payoff profiles arise if two properties hold: 1) the two senders are willing to collaborate in persuading the receiver in some state(s); and 2) the sender signalling second can carry out a credible threat when committing first such that the other sender's room to design signals gets constrained.
    Date: 2022–02
  4. By: Giuseppe Attanasi (Sapienza Università di Roma, Dipartimento di Economia e Diritto, Via del Castro Laurenziano, 9 00161 Roma); Claire Rimbaud (University of Innsbruck, Department of Public Finance, Universitätsstrasse 15/4, 6020 Innsbruck, Austria); Marie Claire Villeval (Univ Lyon, CNRS, GATE UMR 5824, 93 Chemin des Mouilles, F-69130, Ecully, France. IZA, Bonn, Germany)
    Abstract: We investigate whether a player’s guilt aversion is modulated by the co-players’ vulnerability or whether it is only activated by the willingness to avoid disappointing them. We also explore whether the nature of vulnerability (ex-post vs. ex-ante) matters. Ex-post vulnerability arises when a player’s material payoff depends on another player’s action (e.g., recipients in a dictator games). Ex-ante vulnerability arises when her initial endowment can be entrusted to another player (e.g., trustors in trust games). Treatments vary whether trustees can condition their decision on the belief of another player who is ex-post and/or ex-ante vulnerable. We find that trustees’ guilt aversion is insensitive to the nature of the co-player’s vulnerability and to the role of the co-player. Guilt is activated even absent vulnerability of co-players. It is mainly triggered by the willingness to respond to others’ expectations, regardless of their responsibility or the kindness of their intentions.
    Keywords: Guilt Aversion, Vulnerability, Psychological Game Theory, Dictator Game, Trust Game, Experiment
    JEL: C72 C91 D91
    Date: 2022
  5. By: Martino Banchio; Giacomo Mantegazza
    Abstract: This paper studies the strategic interaction of algorithms in economic games. We analyze games where learning algorithms play against each other while searching for the best strategy. We first establish a fluid approximation technique that enables us to characterize the learning outcomes in continuous time. This tool allows to identify the equilibria of games played by Artificial Intelligence algorithms and perform comparative statics analysis. Thus, our results bridge a gap between traditional learning theory and applied models, allowing quantitative analysis of traditionally experimental systems. We describe the outcomes of a social dilemma, and we provide analytical guidance for the design of pricing algorithms in a Bertrand game. We uncover a new phenomenon, the coordination bias, which explains how algorithms may fail to learn dominant strategies.
    Date: 2022–02
  6. By: Wenji Xu (College of Business, City University of Hong Kong); Kai Hao Yang (Cowles Foundation and School of Management, Yale University)
    Abstract: This paper examines the welfare effects of informational intermediation. A (short-lived) seller sets the price of a product that is sold through a (long-lived) informational intermediary. The intermediary can disclose information about the product to consumers, earns a fixed percentage of the sales revenue in each period, and has concerns about its prominence—the market size it faces in the future, which in turn is increasing in past consumer surplus. We characterize the Markov perfect equilibria and the set of subgame perfect equilibrium payoffs of this game and show that when the market feedback (i.e., how much past consumer surplus affects future market sizes) increases, welfare may decrease in the Pareto sense.
    Keywords: Informational intermediary, market size, market feedback, consumer surplus, Pareto-inferior outcomes, Markov perfect equilibrium, subgame perfect equilibrium.
    JEL: C73 D61 D82 D83 L15 M37
    Date: 2022–01
  7. By: Yann Bramoullé (Aix-Marseille Univ, CNRS, AMSE, Marseille, France.); Christian Ghiglino (Department of Economics, Essex University, UK)
    Abstract: We introduce loss aversion into a model of conspicuous consumption in networks. Agents allocate their income between a standard good and a status good to maximize a Cobb-Douglas utility. Agents interact over a connected network and compare their status consumption to their neighbors' average consumption. Loss aversion has a profound impact. If loss aversion is large enough relative to income heterogeneity, a continuum of Nash equilibria appears and all agents consume the same quantity of status good. Otherwise, there is a unique Nash equilibrium and richest agents earn strict status gains while poorest agents earn strict status losses.
    Keywords: loss Aversion, conspicuous consumption, social networks
    Date: 2022–04
  8. By: Martino Banchio; Andrzej Skrzypacz
    Abstract: Motivated by online advertising auctions, we study auction design in repeated auctions played by simple Artificial Intelligence algorithms (Q-learning). We find that first-price auctions with no additional feedback lead to tacit-collusive outcomes (bids lower than values), while second-price auctions do not. We show that the difference is driven by the incentive in first-price auctions to outbid opponents by just one bid increment. This facilitates re-coordination on low bids after a phase of experimentation. We also show that providing information about lowest bid to win, as introduced by Google at the time of switch to first-price auctions, increases competitiveness of auctions.
    Date: 2022–02
  9. By: Koessler, Frédéric; Laclau, Marie; Renault, Jérôme; Tomala, Tristan
    Abstract: This paper studies zero-sum splitting games with finite sets of states. Players dynamically choose a pair of martingales {pt,qt}t, in order to control a terminal payoff u(p∞,q∞). A firstpartintroduces the notion of “Mertens-Zamir transform” of a real-valued matrix and use it to approximate the solution of the Mertens-Zamir system for continuous functions on the square [0, 1]2. A second part considers the general case of finite splitting games with arbitrary correspondences containing the Dirac mass on the current state: building on Laraki and Renault (2020), we show that the value exists by constructing non Markovian ε-optimal strategies and we characterize it as the unique concave-convex function satisfying two new conditions.
    Date: 2022–03–18
  10. By: Simon Jantschgi; Heinrich H. Nax; Bary S. R. Pradelski; Marek Pycia
    Abstract: We address some open issues regarding the characterization of double auctions. Our model is a two-sided commodity market with either finitely or infinitely many traders. We first unify existing formulations for both finite and infinite markets and generalize the characterization of market clearing in the presence of ties. Second, we define a mechanism that achieves market clearing in any, finite or infinite, market instance and show that it coincides with the k-double auction by Rustichini et al. (1994) in the former case. In particular, it clarifies the consequences of ties in submissions and makes common regularity assumptions obsolete. Finally, we show that the resulting generalized mechanism implements Walrasian competitive equilibrium.
    Keywords: Double auction, Walrasian equilibrium, finite and infinite markets, axiomatization
    JEL: D44 D47 D50
    Date: 2022–02
  11. By: Simon Jantschgi; Heinrich H. Nax; Bary S. R. Pradelski; Marek Pycia
    Abstract: Fees are omnipresent in markets but, with few exceptions, are omitted in economic models— such as Double Auctions—of these markets. Allowing for general fee structures, we show that their impact on incentives and efficiency in large Double Auctions hinges on whether the fees are homogeneous (as, e.g., fixed fees and price fees) or heterogeneous (as, e.g., bid-ask spread fees). Double Auctions with homogeneous fees share the key advantages of Double Auctions without fees: markets with homogeneous fees are asymptotically strategyproof and efficient. We further show that these advantages are preserved even if traders have misspecified beliefs. In contrast, heterogeneous fees lead to complex strategic behavior (price guessing) and may result in severe market failures. Allowing for aggregate uncertainty, we extend these insights to market organizations other than the Double Auction.
    Keywords: Double auction, fees, transaction costs, incentives, strategyproofness, efficiency, robustness
    JEL: C72 D44 D47 D81 D82
    Date: 2022–02
  12. By: Guillaume R. Fréchette (New York University); Alessandro Lizzeri (New York University); Jacopo Perego (Columbia University)
    Abstract: We study the role of commitment in communication and its interactions with rules, which determine whether or not information is verifiable. Our framework nests models of cheap talk, information disclosure, and Bayesian persuasion. Our model predicts that commitment has opposite effects on information transmission under the two alternative rules. We leverage these contrasting forces to experimentally establish that subjects react to commitment in line with the main qualitative implications of the theory. Quantitatively, not all subjects behave as predicted. We show that a form of commitment blindness leads some senders to overcommunicate when information is verifiable and undercommunicate when it is not. This generates an unpredicted gap in information transmission across the two rules, suggesting a novel role for verifiable information in practice.
    Keywords: Commitment, Communication, Information, Rules
    JEL: C92 D83 D82 D91
    Date: 2020–06
  13. By: Ziyun Suo (Graduate School of Economics, Kobe University, JAPAN); Qinxin Guo (School of International Economics and Trade, Shanghai Lixin University of Accounting and Finance, CHINA); Junyi Shen (Research Institute for Economics and Business Administration, Kobe University, JAPAN)
    Abstract: In a trust game experiment with Chinese participants, we investigate the effects of trustworthy faces and attractive appearances on trust and trustworthiness behavior. The participants played the role of trustor and made decisions on how much money to transfer to their paired trustees while looking at the trustees' photos presented on a large screen. After that, the trustees decided how much money to return to their paired trustors. Results indicate that trust decisions are influenced by both a trustworthy face and an attractive appearance. In addition, a gender effect on trust decisions was found. Men are more trusting than women are, regardless of whether their counterparts are male or female. However, females are less likely to trust their male counterparts than female counterparts. Finally, it is observed that the trustees with a more attractive appearance are more likely to betray the trust they have, while this is not the case for those with more trustworthy faces.
    Keywords: Trustworthy face; Attractive appearance; Trust behavior; Trustworthiness behavior; Trust game experiment
    JEL: C72 C91 D63
    Date: 2022–03
  14. By: Azam, Jean-Paul; Ferret, Jérôme
    Abstract: A simple game-theoretic model is used to end the sterile intellectual trench war between those who analyze each instance of a community’s radicalization process as a self-contained phenomenon and those who prefer to embed such episodes within a more encompassing social framework. In the model, two groups labeled “Islamic” and “Nativists” are competing using radicalization as a tool to enlarge their share of the limelight in the media. Exogenous shocks are then shown to entail both idiosyncratic responses and interactions between the two groups. The French “radicalized decade” 2011-2020, which witnessed both the Bataclan highly lethal Jihadist attack in 2015 and the populist gilets jaunes massive uprising from 2018 to the COVID-related lockdown in 2020, among other radicalization events, is used to put some of the model’s insight to work. A simple extension of the model is used to shed some light on the emerging Islamo-Leftist and Lefto-Populist tacit collusions, which suggest that the radical left is somehow breaking apart, thus probably boosting in fact the collective radicalization process.
    Date: 2022–03–10
  15. By: Piolatto, A. (Tilburg University, School of Economics and Management); Schuett, Florian (Tilburg University, School of Economics and Management)
    Date: 2022

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