nep-gth New Economics Papers
on Game Theory
Issue of 2022‒06‒13
thirteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. A Dynamic Analysis of Criminal Networks By Luca Colombo; Paola Labrecciosa; Agnieszka Rusinowska
  2. Being in Someone Else's Shoes. Order of play and non-zero equilibria in the ultimatum game By Mario A. Maggioni; Domenico Rossignoli
  3. Why and when coalitions split? An alternative analytical approach with an application to environmental agreements By Raouf Boucekkine; Carmen Camacho; Weihua Ruan; Benteng Zou
  4. Global Climate Governance in the Light of Geoengineering: A Shot in the Dark? By Michael Finus; Francesco Furini
  5. Trust Can Be Learned. Order of moves and agents' behavior in two trust game By Mario A. Maggioni; Domenico Rossignoli
  6. A Large Population Approach to Implementing Efficiency with Minimum Inequality By Sarvesh Bandhu; Ratul Lahkar
  7. Dynamic screening By David Lagziel; Ehud Lehrer
  8. Motives for Cooperation in the One-Shot Prisoner’s Dilemma By Mark Schneider; Timothy Shields
  9. Acquisition, (Mis)use and Dissemination of Information The Blessing of Cursedness and Transparency By Franz Ostrizek; Elia Sartori
  10. A Theory of Hypocrisy By Alice Hallman; Daniel Spiro
  11. Guilt Aversion in (New) Games: Does Partners' Vulnerability Matter? By Giuseppe Attanasi; Claire Rimbaud; Marie Villeval
  12. A Wake-Up Call Theory of Contagion By Ahnert, Toni; Bertsch, Christoph
  13. Personalized Pricing and Competition By Rhodes, Andrew; Zhou, Jidong

  1. By: Luca Colombo (Deakin Business School - Department of Economics, Australia); Paola Labrecciosa (Monash Business School - Department of Economics, Australia); Agnieszka Rusinowska (CNRS, Paris School of Economics, Centre d'Economie de la Sorbonne)
    Abstract: The paper presents a novel approach based on differential games to the study of criminal networks. We extend the static crime network game (Ballester et al., 2004, 2006) to a dynamic setting. First, we determine the relationship between the Markov Perfect Equilibrium (MPE) and the vector of Bonacich centralities. The established proportionality between the Nash equilibrium and the Bonacich centrality in the static game does not hold in general in the dynamic setting. Next, focusing on regular networks, we provide an explicit characterization of equilibrium strategies, and conduct comparative dynamic analysis with respect to the network size, network density, and implicit growth rate of total wealth in the economy. Contrary to the static game, where aggregate equilibrium increases with network size and density, in the dynamic setting, more criminals or more connected criminals can lead to a decrease in total crime, both in the short run and at the steady state. We also examine another novel issue in the network theory literature, i.e., the existence of a voracity effect, occuring when an increase in the implicit growth rate of total wealth in the economy lowers economic growth. We do identify the presence of such a voracity effect in our setting
    Keywords: differential games; Markov Perfect Equilibrium; social networks; criminal networks; Bonacich centrality
    JEL: C73 D85 K42
    Date: 2022–02
  2. By: Mario A. Maggioni; Domenico Rossignoli
    Abstract: In this paper, we devise a randomized experiment to test whether the order of play in two Ultimatum Games influences the choice of players, using a sample of a thousand individuals representative of the entire Italian adult population. We find that, in the second game, Proposers increase the average share sent and Respondents reduce the minimum acceptable offer. Both effects increase the probability of reaching a nonzero equilibrium. Given that no result is known to the player during the games, we suggest a role for a raised awareness of the partner's preferences, preferred outcomes, and strategies in influencing the subject's behavior, and consequently the game's equilibria, in the second game.
    JEL: C91 D83 D91
    Date: 2022
  3. By: Raouf Boucekkine (Rennes School of Business); Carmen Camacho (Paris School of Economics & CNRS); Weihua Ruan (Purdue University Northwest); Benteng Zou (DEM, Université du Luxembourg)
    Abstract: We use a parsimonious two-stage differential game setting where the duration of the first stage, the coalition stage, depends on the will of a particular player to leave the coalition through an explicit timing variable. By specializing in a standard linear-quadratic environmental model augmented with a minimal constitutional setting for the coalition (payoff share parameter), we are able to analytically extract several nontrivial findings. Three key aspects drive the results: the technological gap as an indicator of heterogeneity across players, the constitution of the coalition and the intensity of the public bad (here, the pollution damage). We provide with a full analytical solution to the two-stage differential game. In particular, we characterize the intermediate parametric cases leading to optimal nite time splitting. A key characteristic of these nite-time-lived coalitions is the requirement of the payoff share accruing to the splitting country to be large enough. Incidentally, our two-stage differential game setting reaches the conclusion that splitting countries are precisely those which use to benefit the most from the coalition. Constraining the payoff share to be low by Constitution may lead to optimal everlasting coalitions only provided initial pollution is high enough, which may cover the emergency cases we are witnessing nowadays.
    Keywords: Coalition splitting ; multistage optimal control ; differential game
    JEL: C61 C73 D71
    Date: 2022
  4. By: Michael Finus (University of Graz, Austria); Francesco Furini (University of Hamburg, Germany)
    Abstract: Solar radiation management (SRM), as one form of geoengineering, has been proposed as a last exit strategy to address global warming. Even though SRM is expected to be cheap, it may be risky and associated with high collateral damages. We analyze how SRM affects equilibrium mitigation strategies, the governance architecture of a climate agreement and whether and how signatories to a climate agreement can avoid that non-signatories deploy SRM. We show under which conditions the threat to deploy geoengineering can stabilize a large climate agreement. Results are derived in a cartel formation game and all qualitative conclusions are confirmed in a repeated game framework.
    Keywords: mitigation-geoengineering game; solar radiation management; collateral damages; climate agreements.
    JEL: D71 D74 H41 Q54
    Date: 2022–05
  5. By: Mario A. Maggioni; Domenico Rossignoli
    Abstract: In this paper, we devise a randomized experiment to test whether the order of play in two Trust Games influences the observed level of trust displayed by Trustors (as measured by the share of endowment sent to Trustees). We find that playing Trustor in the second game increases the average share sent to the Trustee. We suggest a role for information acquisitions and learning due to the different order in which subjects play the Trustor role.
    JEL: C91 D83 D91
    Date: 2022
  6. By: Sarvesh Bandhu (Indian Institute of Management, Bangalore); Ratul Lahkar (Ashoka University)
    Abstract: We consider the implementation of efficiency with minimum inequality in a large population model of negative externalities. Formally, the model is one of tragedy of the commons with the aggregate strategy at the efficient state being lower than at the Nash equilibrium. A planner can restore efficiency by imposing an externality equivalent tax and then redistribute the tax revenue as transfers to lower inequality. We characterize the transfer vector that minimizes inequality at the efficient state subject to incentive compatibility and budget balance. We then construct a mechanism that implements efficiency with minimum inequality in dominant strategies. We also show that minimizing inequality at the efficient state maximizes the minimum payoff at efficiency. But it is not equivalent to implementing the Rawlsian social choice function.
    Date: 2022–03–15
  7. By: David Lagziel; Ehud Lehrer
    Abstract: We study dynamic screening problems where elements are subjected to noisy evaluations and, in every stage, some of the elements are rejected while the remaining ones are independently re-evaluated in subsequent stages. We prove that, ceteris paribus, the quality of a dynamic screening process is not monotonic in the number of stages. Specifically, we examine the accepted elements' values and show that adding a single stage to a screening process may produce inferior results, in terms of stochastic dominance, whereas increasing the number of stages substantially leads to a first-best outcome.
    Date: 2022–04
  8. By: Mark Schneider (Culverhouse College of Business, University of Alabama); Timothy Shields (Argyros School of Business and Management, Economic Science Institute, Chapman University)
    Abstract: We investigate the motives for cooperation in the one-shot Prisoner’s Dilemma (PD). A prior study finds that cooperation rates in one-shot PD games can be ranked empirically by the social surplus from cooperation. That study employs symmetric payoffs from cooperation in simultaneous PD games. Hence, in that setting, it is not possible to discern the motives for cooperation since three prominent social welfare criteria, social surplus (efficiency) preferences, Rawlsian maximin preferences, and inequity aversion make the same predictions. In the present paper, we conduct an experiment to identify which of these social preferences best explains differences in cooperation rates and to study the effects of the risk of non-cooperation.
    Keywords: Cooperation; Prisoner’s Dilemma; Inequity aversion; Social surplus; Social preferences
    JEL: C92 D82 D81 M40
    Date: 2022
  9. By: Franz Ostrizek; Elia Sartori
    Abstract: We study strategic interactions when players observe equilibrium statistics, focusing on First, their endogenous precision as signals of the fundamental; and second, agents’ well-documented difficulty in learning from such signals. We define the novel notion of cursed expectations equilibrium with information acquisition which disciplines information acquisition in a setting with incorrect learning by means of a subjective envelope condition: agents correctly anticipate their actions but incorrectly deem them optimal. Cursed agents use and acquire more private information, which counteracts suboptimal information dissemination and increases welfare. Transparency crowds out private information but is always beneficial; other policy instruments have paradoxical effects.
    Date: 2022–05
  10. By: Alice Hallman; Daniel Spiro
    Abstract: This paper explains the occurrence of hypocrisy – when the by-society most despised types pretend to be the most revered types. Real-world phenomena include pedophile priests, sex-offender feminists and seemingly very busy dispensable office workers. Building on the signaling framework of Bernheim (1994) – where payoffs consist of an intrinsic cost of falsifying yourself, and a concern for social esteem – we show conditions for emergence of hypocrisy in equilibrium. In such equilibria the most despised types along with the most revered types behave normatively, others do not. Thus, in equilibrium there are “rumors” about those acting the most normatively – society infers that they are either truly normative or despised, but one cannot know who is who. This is to be distinguished from “conformity” – where the most normative and almost-normative types fully follow a social norm. Whether conformity or hypocrisy will arise in equilibrium depends on the cost of falsification, and the number of hypocrites depends on the weight of social esteem. Our theory thus shows how cultural parameters map into equilibrium culture.
    Keywords: social esteem, hypocrisy, conformity, social norm
    JEL: D70 D91 Z10
    Date: 2022
  11. By: Giuseppe Attanasi (Università degli Studi di Roma "La Sapienza" = Sapienza University [Rome]); Claire Rimbaud (University of Innsbruck); Marie Villeval (CNRS - Centre National de la Recherche Scientifique, IZA - Forschungsinstitut zur Zukunft der Arbeit - Institute of Labor Economics)
    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,Trust Game,Experiment
    Date: 2022–03–25
  12. By: Ahnert, Toni; Bertsch, Christoph
    Abstract: We offer a theory of financial contagion based on the information choice of investors after observing a financial crisis elsewhere. We study global coordination games of regime change in two regions linked by an initially unobserved macro shock. A crisis in region 1 is a wake-up call to investors in region 2. It induces them to reassess the regional fundamental and acquire information about the macro shock. Contagion can occur even after investors learn that region 2 has no ex-post exposure to region 1. We explore normative and testable implications of the model. In particular, our results rationalize evidence about contagious currency crises and bank runs after wake-up calls and provide some guidance for future empirical work. JEL Classification: D83, F3, G01, G21
    Keywords: bank run, contagion, financial crises, fundamental re-assessment., global games, information choice, wake-up call
    Date: 2022–05
  13. By: Rhodes, Andrew; Zhou, Jidong
    Abstract: We study personalized pricing (or first-degree price discrimination) in a general oligopoly model. In the short-run, when the market structure is fixed, the impact of personalized pricing hinges on the degree of market coverage (i.e., how many consumers buy). If coverage is high (e.g., because the production cost is low, or the number of firms is large), personalized pricing intensifies competition and so harms firms but benefits consumers, whereas the opposite is true if coverage is low. However in the long-run, when the market structure is endogenous, personalized pricing always benefits consumers because it induces the socially optimal level of firm entry. We also study the asymmetric case where some firms can use consumer data to price discriminate while others cannot, and show it can be worse for consumers than when either all or no firms can personalize prices.
    Keywords: personalized pricing, competition, price discrimination, consumer data
    JEL: D43 D82 L13
    Date: 2022–05

This nep-gth issue is ©2022 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.