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on Game Theory |
| By: | Berliant, Marcus |
| Abstract: | Workers generally commute on a daily basis, so we model commuting as a repeated game. The folk theorem implies that for sufficiently large discount factors, the repeated commuting game has as a Nash equilibrium any feasible strategy that is uniformly better than the minimax strategy payoff for a commuter in the one shot game, repeated over the infinite horizon. This includes the efficient equilibria. An example where the efficient payoffs strictly dominate the one shot Nash equilibrium payoffs is provided. Our conclusions pose a challenge to congestion pricing in that equilibrium selection could be at least as effective in improving welfare. We examine evidence from St. Louis to determine what equilibrium strategies are actually played in the repeated commuting game. |
| Keywords: | Repeated game; Nash equilibrium; Commuting; Folk theorem |
| JEL: | R41 |
| Date: | 2022–07–23 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113862&r= |
| By: | David Bartl; Mikl\'os Pint\'er |
| Abstract: | We consider transferable utility cooperative games with infinitely many players and the core understood in the space of bounded additive set functions. We show that, if a game is bounded below, then its core is non-empty if and only if the game is balanced. This finding is a generalization of Schmeidler's (1967) original result ``On Balanced Games with Infinitely Many Players'', where the game is assumed to be non-negative. We furthermore demonstrate that, if a game is not bounded below, then its core might be empty even though the game is balanced; that is, our result is tight. We also generalize Schmeidler's (1967) result to the case of restricted cooperation too. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.14672&r= |
| By: | Streekstra, Leanne (Research Centre of QSMS, Faculty of Economic and Social Sciences); Trudeau, Christian (Department of Economics, University of Windsor) |
| Abstract: | We extend the familiar shortest path problem by supposing that agents have demands over multiple periods. This potentially allows agents to combine their paths if their demands are complementary; for instance if one agent only needs a connection to the source in the summer while the other requires it only in the winter. We not only show that the resulting cost sharing problem always generates a totally balanced game, regardless of the number of agents and periods, the cost structure or the demand profile, but that all totally balanced games are representable as MSP problems. We then exploit the fact that the model encompasses many well-studied problems to obtain or reobtain balancedness and total-balancedness results for source-connection problems, market problems and minimum coloring problems. |
| Keywords: | shortest path; demand over multiple periods; cooperative game; core; total-balancedness; source-connection; assignment. |
| JEL: | C71 D63 |
| Date: | 2022–07–15 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sdueko:2022_008&r= |
| By: | Gary Charness (Department of Economics, University of California); Alessandro Sontuoso (Smith Institute for Political Economy and Philosophy, Chapman University) |
| Abstract: | We investigate how strategic behavior is affected by the set of notions (frames) used when thinking about the game. In our games, the action set consists of visual objects: each player must privately choose one, trying to match the counterpart’s choice. We propose a model where different player-types are aware of different attributes of the action set (hence, different frames). One of the novelties is an epistemic structure that allows players to think about new frames, after initial unawareness of some attributes. To test the model, our experimental design brings about multiple frames by varying subjects’ awareness of several attributes. |
| Keywords: | unawareness, awareness, interactive epistemology, rationalizability, coordination |
| JEL: | C72 C91 D83 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:22-10&r= |
| By: | Juuso Toikka (University of Pennsylvania); Akhil Vohra (University of Cambridge); Rakesh Vohra (University of Pennsylvania) |
| Abstract: | We introduce reduced form representations of Bayesian persuasion problems where the variables are the probabilities that the receiver takes each of her actions. These are simpler objects than, say, the joint distribution over states and actions in the obedience formulation of the persuasion problem. This can make a difference in computational and analytical tractability which we illustrate with two applications. The first shows that with quadratic receiver payoffs, the worst-case complexity scales with the number of actions and not the number of states. If |A |and |S | denote the number of actions and states respectively, the worst case complexity of the obedience formulation is O(|A |2.5 max{|A |2.5,|S |2.5}). The worst case complexity of the reduced form representation is O(|A |3). In the second application, the reduced form leads to a simple greedy algorithm to determine the maximum value a sender can achieve in any cheap talk equilibrium. |
| Keywords: | Bayesian Persuasion, Information Design, Mechanism Design, Duality |
| JEL: | C6 D82 D83 |
| Date: | 2022–06–28 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:22-018&r= |
| By: | Antonio Cabrales; Esther Hauk |
| Abstract: | In this paper we model the interaction between leaders, their followers and crowd followers in a coordination game with local interaction. The steady states of a dynamic best-response process can feature a coexistence of Pareto dominant and risk dominant actions in the population. The existence of leaders and their followers, plus the local interaction, which leads to clustering, is crucial for the survival of the Pareto dominant actions. The evolution of leader and crowd followership shows that leader followership can also be locally stable around Pareto dominant leaders. The paper answers the questions (i) which Leader should be removed and (ii) how to optimally place leaders in the network to enhance payoff dominant play. |
| Keywords: | coordination games, leaders, followers, evolution |
| JEL: | C70 D85 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_9845&r= |
| By: | Guo Bai |
| Abstract: | This paper studies a dynamic information acquisition model with payoff externalities. Two players can acquire costly information about an unknown state before taking a safe or risky action. Both information and the action taken are private. The first player to take the risky action has an advantage but whether the risky action is profitable depends on the state. The players face the tradeoff between being first and being right. In equilibrium, for different priors, there exist three kinds of randomisation: when the players are pessimistic, they enter the competition randomly; when the players are less pessimistic, they acquire information and then randomly stop; when the players are relatively optimistic, they randomly take an action without acquiring information. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.02898&r= |
| By: | Ata Atay; Christian Trudeau |
| Abstract: | This paper studies queueing problems with an endogenous number of machines with and without an initial queue, the novelty being that coalitions not only choose how to queue, but also on how many machines. For a given problem, agents can (de)activate as many machines as they want, at a cost. After minimizing the total cost (processing costs and machine costs), we use a game theoretical approach to share to proceeds of this cooperation, and study the existence of stable allocations. First, we study queueing problems with an endogenous number of machines, and examine how to share the total cost. We provide an upper bound and a lower bound on the cost of a machine to guarantee the non-emptiness of the core (the set of stable allocations). Next, we study requeueing problems with an endogenous number of machines, where there is an existing queue. We examine how to share the cost savings compared to the initial situation, when optimally requeueing/changing the number of machines. Although, in general, stable allocation may not exist, we guarantee the existence of stable allocations when all machines are considered public goods, and we start with an initial schedule that might not have the optimal number of machines, but in which agents with large waiting costs are processed first. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.07190&r= |
| By: | Alexandre Chirat (Université Paris Ouest Nanterre - EconomiX); Guillaume Sekli (CRESE EA3190, Univ. Bourgogne Franche-Comté, F-25000 Besançon, France) |
| Abstract: | This article uses the main tools of cooperative game theory, the core of a game and the Shapley value, to tackle the challenge posed by corporate tax harmonization in order to fight tax competition and profit shifting. These tools are applied to provide a counterfactual evaluation and to assess the credibility of Saez and Zucman (2019) proposal to establish a minimum rate at 25% at the G7/G20 level. Based on the empirical data of Tørsløv et al. (2020), our main results are the following. First, at the G7 level, the more countries involved in the agreement, the more efficient it would be. Second, stability of cooperation at the G7 level can be achieved without giving up fairness consideration in the distribution of the surplus. We then extend our application to the G20 and show that these results do not hold anymore. Third, from our original methodological approach, we confirm that not only the target rate matters in the perspective of international tax cooperation, but also the numbers of participants and their current effective rates. |
| Keywords: | International taxation, Tax cooperation, Profit shifting, Tax havens, Shapley value |
| JEL: | E62 C71 F42 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2022-08&r= |
| By: | Backhaus, Teresa; Huck, Steffen; Leutgeb, Johannes Josef; Oprea, Ryan |
| Abstract: | We demonstrate in a laboratory experiment in which subjects play a two-player Cournot-Tullock game over hundreds of periods of varying length that full accounts of subjects' learning requires the consideration of, both, 'period time' and 'physical time.' |
| Keywords: | Cournot oligopoly,Laboratory experiment,Learning,Time |
| JEL: | C73 C92 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:spii2022302&r= |
| By: | Jerry Anunrojwong; Krishnamurthy Iyer; David Lingenbrink |
| Abstract: | We consider a persuasion problem between a sender and a receiver whose utility may be nonlinear in her belief; we call such receivers risk-conscious. Such utility models arise when the receiver exhibits systematic biases away from expected-utility-maximization, such as uncertainty aversion (e.g., from sensitivity to the variance of the waiting time for a service). Due to this nonlinearity, the standard approach to finding the optimal persuasion mechanism using revelation principle fails. To overcome this difficulty, we use the underlying geometry of the problem to develop a convex optimization framework to find the optimal persuasion mechanism. We define the notion of full persuasion and use our framework to characterize conditions under which full persuasion can be achieved. We use our approach to study binary persuasion, where the receiver has two actions and the sender strictly prefers one of them at every state. Under a convexity assumption, we show that the binary persuasion problem reduces to a linear program, and establish a canonical set of signals where each signal either reveals the state or induces in the receiver uncertainty between two states. Finally, we discuss the broader applicability of our methods to more general contexts, and illustrate our methodology by studying information sharing of waiting times in service systems. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.03758&r= |
| By: | Isabelle Brocas; Juan Carrillo |
| Abstract: | Adults do not play the Nash equilibrium in the well known centipede game. While Palacios-Huerta and Volij (2009) argued that behavior results from the failure of backward induction logic, Levitt et al. (2011) found that players who know how to backward induct still do not play Nash. Here, we ask children and adolescents (ages 8 to 16) to play the centipede game in the laboratory and we leverage knowledge about developing abilities to assess the contribution of backward induction logic. In line with the literature, we find that the ability to perform backward induction increases with age. However, it predicts behavior only in elementary school children: those with advanced logical abilities over-apply their skills. Starting in middle school, students who reason logically know that the unraveling argument should not be applied blindly. They utilize Theory-of-Mind (ToM) abilities to form beliefs about others' play and (optimally) refrain from stopping immediately. Their behavior is in line with the deviations observed in adults. Interestingly, developing ToM leads to a gradual decrease in stopping stages with age, which is accompanied by a decrease in payoffs with age. The results indicate that ToM is the key contributor of behavior that helps departing from backward induction when beneficial. |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:feb:artefa:00761&r= |
| By: | Bester, Helmut; Sákovics, József |
| Abstract: | We investigate the welfare effect of increasing competition in an anonymous two-sided matching market, where matched pairs play an infinitely repeated Prisoner's Dilemma. Higher matching efficiency is usually considered detrimental as it creates stronger incentives for defection. We point out, however, that a reduction in matching frictions also increases welfare because more agents find themselves in a cooperative relationship. We characterize the conditions for which increasing competition increases overall welfare. In particular, this is always the case when the incentives for defection are high. |
| Keywords: | Cooperation,Prisoner's Dilemma,Competition,Welfare,Matching,Trust Building |
| JEL: | C72 C73 C78 D6 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:fubsbe:20226&r= |
| By: | Marcos Fernandes |
| Abstract: | I propose a theoretical social learning model to investigate how confirmation bias affects opinions when agents exchange information over a social network. For that, besides exchanging opinions with friends, individuals observe a public sequence of potentially ambiguous signals and they interpret it according to a rule that accounts for confirmation bias. I first show that, regardless the level of ambiguity and both in the case of a single individual or of a networked society, only two types of opinions might be formed and both are biased. One opinion type, however, is necessarily less biased than the other depending on the state of the world. The size of both biases depends on the ambiguity level and the relative magnitude of the state and confirmation biases. In this context, long-run learning is not attained even when individuals interpret ambiguity impartially. Finally, since it is not trivial to ascertain analytically the probability of emergence of the less biased consensus when individuals are connected through a social network and have different priors, I use simulations to analyze its determinants. Three main results derived from this exercise are that, in expected terms, i) some network topologies are more conducive to consensus efficiency, ii) some degree of partisanship enhances consensus efficiency even under confirmation bias and iii) open-mindedness, i.e. when partisans agree to exchange opinions with other partisans with polar opposite beliefs, might harm efficiency in some cases. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.12594&r= |
| By: | Shraddha Pathak; Ankur A. Kulkarni |
| Abstract: | During an epidemic, the information available to individuals in the society deeply influences their belief of the epidemic spread, and consequently the preventive measures they take to stay safe from the infection. In this paper, we develop a scalable framework for ascertaining the optimal information disclosure a government must make to individuals in a networked society for the purpose of epidemic containment. This problem of information design problem is complicated by the heterogeneous nature of the society, the positive externalities faced by individuals, and the variety in the public response to such disclosures. We use a networked public goods model to capture the underlying societal structure. Our first main result is a structural decomposition of the government's objectives into two independent components -- a component dependent on the utility function of individuals, and another dependent on properties of the underlying network. Since the network dependent term in this decomposition is unaffected by the signals sent by the government, this characterization simplifies the problem of finding the optimal information disclosure policies. We find explicit conditions, in terms of the risk aversion and prudence, under which no disclosure, full disclosure, exaggeration and downplay are the optimal policies. The structural decomposition results are also helpful in studying other forms of interventions like incentive design and network design. |
| Date: | 2022–07 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2207.11578&r= |
| By: | Mark Whitmeyer; Kun Zhang |
| Abstract: | A sender flexibly acquires evidence--which she may pay a third party to certify--to disclose to a receiver. When evidence acquisition is overt, the receiver observes the evidence gathering process irrespective of whether its outcome is certified. When acquisition is covert, the receiver does not. In contrast to the case with exogenous evidence, the receiver prefers a strictly positive certification cost. As acquisition costs vanish, equilibria converge to the Pareto-worst free-learning equilibrium. The receiver always prefers covert to overt evidence acquisition. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.04922&r= |
| By: | Van Moer, Geert |
| Abstract: | I analyze horizontal agreements about the use of a natural resource. I consider a Cournot duopoly where production depends on two inputs, a natural resource and a basket of other resources, according to a production technology with constant returns to scale. I compare three regimes. (1) The competitive benchmark is defined such that firms operate with the cost-minimizing input combination. (2) A joint absolute usage target lowers the absolute usage of the natural resource. It also lowers the usage in relative terms, per unit of production, except with a fixed-proportions production technology. (3) A joint relative usage target mimics the competitive benchmark. |
| Keywords: | Horizontal Agreements; Natural Resources |
| JEL: | L13 L41 Q01 Q38 |
| Date: | 2022–07–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:113878&r= |
| By: | Neus, Werner; Stadler, Manfred |
| Abstract: | We study quantity and price competition in heterogeneous triopoly markets where two firms are commonly owned by institutional shareholders, whereas the third firm is owned by independent shareholders. With such a mixed ownership structure, the common owners have an incentive to coordinate their firms' behavior. If direct coordination of the operational decisions is prevented by antitrust authorities, delegation to managers enables indirect coordination via the designs of the manager compensation contracts. Compared to direct owner collusion, this more sophisticated type of indirect collusion leads to a lower loss of social welfare in the mode of quantity competition, but to a higher loss of welfare in the mode of price competition. In general, owner coordination via the management compensation contracts is detrimental to welfare: the tragedy of common holdings. |
| Keywords: | Manager compensation,common holdings,shareholder coordination |
| JEL: | G32 L22 M52 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:tuewef:154&r= |
| By: | Richards, Timothy J.; Rutledge, Zachariah |
| Keywords: | Consumer/Household Economics, Agricultural and Food Policy, Agribusiness |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea22:322101&r= |
| By: | Carlos Pombo; Cristian Pinto-Gutierrez; Mauricio Jara-Betín |
| Abstract: | This paper examines the relationship between multiple large shareholder coalitions and the probability of completing a cross-border merger and acquisitions (M&As). Using different power distribution indicators based on Shapley-Shubik values for cooperative games for a sample of acquirers' firms from Latin America, our results suggest that a higher likelihood of coalitions among large shareholders increases the probability of completing a cross-border deal. This relationship is more pronounced in acquirer firms with more institutional investors and ownership stakes. We also find that multiple large shareholder coalitions are positively associated with the long-term operating performance of an acquirer firm involved in a cross-border deal. As a result, colluding blockholders in acquirer firms are more prone to attempt risky cross-border acquisitions. However, when they do, the acquisitions tend to be value-enhancing in the long term. |
| Keywords: | Blockholders, coalitions, Power Indices, Cross-border deals, institutional ownership, Latin America |
| JEL: | G32 G34 |
| Date: | 2022–08–04 |
| URL: | http://d.repec.org/n?u=RePEc:col:000089:020333&r= |
| By: | Gabriele Camera (Economic Science Institute, Chapman University) |
| Abstract: | Central banks may soon issue currencies that are entirely digital (CBDCs) and possibly interest-bearing. A strategic analytical framework is used to investigate this innovation in the laboratory, contrasting a traditional “plain†tokens baseline to treatments with “sophisticated†interest-bearing tokens. In the experiment, this theoretically beneficial innovation precluded the emergence of a stable monetary system, reducing trade and welfare. Similar problems emerged when sophisticated tokens complemented or replaced plain tokens. This evidence underscores the advantages of combining theoretical with experimental investigation to provide insights for payments systems innovation and policy design. |
| Keywords: | digital currency, endogenous institutions, repeated games, CBDC |
| JEL: | C70 C90 |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:chu:wpaper:22-11&r= |
| By: | Evans, Alecia; Sesmero, Juan Pablo |
| Keywords: | Research Methods/Statistical Methods, Institutional and Behavioral Economics |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ags:aaea22:322434&r= |
| By: | Javier Bianchi; César Sosa-Padilla |
| Abstract: | This paper explores the role of restrictions on the use of international reserves as economic sanctions. We develop a simple model of the strategic game between a sanctioning (creditor) country and a sanctioned (debtor) country. We show how the sanctioning country should impose restrictions optimally, internalizing the geopolitical benefits and the financial costs of a potential default from the sanctioned country. |
| Keywords: | Wars; International reserves; Financial sanctions; Sovereign default |
| JEL: | F51 F50 F30 |
| Date: | 2022–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:94110&r= |