nep-gth New Economics Papers
on Game Theory
Issue of 2022‒09‒12
eleven papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Subgame perfect Nash equilibrium for dynamic pricing competition with finite planning horizon By Niloofar Fadavi
  2. Efficient Entry in Cournot (Global) games By Harrison, Rodrigo; Jara-Moroni, Pedro
  3. Intelligence Disclosure and Cooperation in Repeated Interactions By Lambrecht, Marco; Proto, Eugenio; Rustichini, Aldo; Sofianos, Andis
  4. Weighted Average-convexity and Cooperative Games By Alexandre Skoda; Xavier Venel
  5. Can Not Wanting to Wear a Mask be Rational? By Batabyal, Amitrajeet
  6. Information Aggregation in Multidimensional Cheap Talk By Daniel Habermacher
  7. The effect of choosing a proposer through a bidding procedure in implementing the Shapley value By Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada
  8. The Way People Lie in Markets: Detectable vs. Deniable Lies By Chloe Tergiman; Marie Claire Villeval
  9. Opacity in Bargaining over Public Good Provision By Julian Lamprecht; Marcel Thum
  10. Experimental Auctions with Securities By Zachary Breig; Allan Hernández-Chanto; Declan Hunt
  11. Systemic-risk and evolutionary stable strategies in a financial network By Indrajit Saha; Veeraruna Kavitha

  1. By: Niloofar Fadavi
    Abstract: Having fixed capacities, homogeneous products and price sensitive customer purchase decision are primary distinguishing characteristics of numerous revenue management systems. Even with two or three rivals, competition is still highly fierce. This paper studies sub-game perfect Nash equilibrium of a price competition in an oligopoly market with perishable assets. Sellers each has one unit of a good that cannot be replenished, and they compete in setting prices to sell their good over a finite sales horizon. Each period, buyers desire one unit of the good and the number of buyers coming to the market in each period is random. All sellers' prices are accessible for buyers, and search is costless. Using stochastic dynamic programming methods, the best response of sellers can be obtained from a one-shot price competition game regarding remained periods and the current-time demand structure. Assuming a binary demand model, we demonstrate that the duopoly model has a unique Nash equilibrium and the oligopoly model does not reveal price dispersion with respect to a particular metric. We illustrate that, when considering a generalized demand model, the duopoly model has a unique mixed strategy Nash equilibrium while the oligopoly model has a unique symmetric mixed strategy Nash equilibrium.
    Date: 2022–08
  2. By: Harrison, Rodrigo; Jara-Moroni, Pedro (Universidad de Santiago de Chile.Facultad de Administración y Economía.Departamento de Economía; Universidad Adolfo Ibáñez. Facultad de Ingeniería y Ciencias)
    Abstract: IWe present a two stage entry game in which a large number of firms choose simultaneouslywhether to enter a market or not. Firms that decide to enter the market produce a homogeneousgood facing Cournot competition under a parametrized demand. Using a global game approach, weshow that there exist selection of a unique equilibrium in the first stage entry game, in which thereis efficient entry, i.e. firms that enter are the ones with the lowest entry cost, providing theoreticalfoundation for the equilibrium selection assumption utilized in entry models in the empirical entryliterature. We explore as well efficiency properties of the selected equilibrium and provide examplesthat do not fit our general framework, but where similar results may be obtained.
    Keywords: Cournot, Global game, Equilibrium selection, Strategic substitutes
    JEL: L13 D82 C72
    Date: 2021–04
  3. By: Lambrecht, Marco (Hanken School of Economics); Proto, Eugenio (University of Glasgow); Rustichini, Aldo (University of Minnesota); Sofianos, Andis (Heidelberg University)
    Abstract: We investigate in a laboratory setting whether revealing information on the intelligence of both players affects behavior in repeated games. We study the Prisoners' Dilemma (PD) and Battle of Sexes (BoS) as they cover a large set of the interesting scenarios generated by repeated games of two actions two players symmetric stage games. Furthermore, in order to understand how cognitive skills disclosure interacts with different potential payoff allocations, we consider two versions of the BoS, with high and low payoff inequality. In PD, disclosure markedly hampers cooperation, as higher intelligence players trust their partners less when made aware that they play against someone of lower ability than themselves. Similarly, in BoS with low payoff inequality, disclosure disrupts coordination, as higher intelligence players try to force their most preferred outcome. However, in the BoS with high payoff inequality, this pattern of behavior changes substantially. Disclosure does not significantly affect coordination, while coordination is more often on outcomes that favor the less intelligent player. This result may indicate an intention to achieve a fairer division, or that the intelligent player anticipates that the other player will not concede.
    Keywords: repeated prisoners dilemma, cooperation, intelligence, IQ
    JEL: C73 C91 C92 D83
    Date: 2022–07
  4. By: Alexandre Skoda (UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique); Xavier Venel (Dipartimento di Economia e Finanza [Roma] - LUISS - Libera Università Internazionale degli Studi Sociali Guido Carli [Roma])
    Abstract: We generalize the notion of convexity and average-convexity to the notion of weighted average-convexity. We show several results on the relation between weighted averageconvexity and cooperative games. First, we prove that if a game is weighted averageconvex, then the corresponding weighted Shapley value is in the core. Second, we exhibit necessary conditions for a communication TU-game to preserve the weighted averageconvexity. Finally, we provide a complete characterization when the underlying graph is a priority decreasing tree.
    Keywords: TU-games,convexity,average-convexity,weighted Shapley value,communication
    Date: 2022–06–27
  5. By: Batabyal, Amitrajeet
    Abstract: I answer the question in the title by analyzing an office environment in which n∈N individuals work together in an enclosed area. The ith worker wears his mask for h_i hours per day and this action involves a disutility. His health benefit from wearing a mask depends on how his mask wearing compares with the mask wearing of his co-workers. In this setting, I first compute the symmetric Nash equilibrium that describes the optimal number of hours of mask wearing by each worker. Second, I compute the Pareto efficient level of mask wearing on the part of the n workers. Finally, I explain why there is excessive mask wearing in the Nash equilibrium and then point out that it can indeed be rational to not want to wear a mask.
    Keywords: Mask, Nash Equilibrium, Pareto Efficiency, Rat Race
    JEL: I12 I31
    Date: 2021–11–09
  6. By: Daniel Habermacher (Universidad de los Andes, Chile)
    Abstract: I examine a cheap talk game with multiple interdependent decisions, in which biased senders privately observe information about payoff-relevant states. I find that senders are willing to use open (state-specific) communication channels to strategically convey information about other states that otherwise cannot be revealed. In equilibrium, this leads to a loss of credibility that reduces the set of parameters for which communication is incentive compatible. The credibility loss associated with a sender arises when a given piece of information is relevant for both low- and high-conflict decisions. Surprisingly, when the receiver is expected to observe more of such information on path,the associated credibility loss recedes—i.e. the sender is more willing to reveal information that is only relevant for low-conflict decisions. Finally, I fully characterize the communication equilibrium in a simple version of the model, which I use as baseline to analyze the interaction between informational interdependence and preferences for coordinated decisions.
    Keywords: Information Economics, Cheap Talk, Multidimensional Communication
    JEL: D21 D83
    Date: 2022–08
  7. By: Michela Chessa; Nobuyuki Hanaki; Aymeric Lardon; Takashi Yamada
    Abstract: We experimentally compare a simplified version of two mechanisms that implement the Shapley value as an (ex ante) equilibrium outcome of a noncooperative bargaining procedure: one proposed by Hart and Mas-Colell (1996, H-MC) and the other by Perez-Castrillo and Wettstein (2001, PC-W). While H-MC induces the Shapley value only on average, PC-W does so as a unique equilibrium outcome by introducing an additional bidding stage on top of H-MC. We investigate the effect of this additional bidding stage on the resulting outcomes such as the frequency of grand coalition formation, efficiency, and the distance between the realized allocation and the Shapley value. Our experiment shows that H-MC not only results in significantly greater efficiency than PC-W, but also that the average allocation is closer to the Shapley value for those groups that formed the grand coalition. This difference is because those proposers who won the bidding stage in PC-W tend to offer an allocation that favors themselves more than the randomly chosen proposers in H-MC, and such offers are more likely to be rejected.
    Date: 2022–05
  8. By: Chloe Tergiman (Smeal College of Business - Penn State - Pennsylvania State University - Penn State System); Marie Claire Villeval (GATE Lyon Saint-Étienne - Groupe d'analyse et de théorie économique - ENS Lyon - École normale supérieure - Lyon - UL2 - Université Lumière - Lyon 2 - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - UJM - Université Jean Monnet [Saint-Étienne] - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)
    Abstract: In a finitely repeated game with asymmetric information, we experimentally study how individuals adapt the nature of their lies when settings allow for reputation-building. While some lies can be detected ex post by the uninformed party, others remain deniable. We find that traditional market mechanisms such as reputation generate strong changes in the way people lie and lead to strategies in which individuals can maintain plausible deniability: people simply hide their lies better by substituting deniable lies for detectable lies. Our results highlight the limitations of reputation to root out fraud when a Deniable Lie strategy is available.
    Keywords: Lying,Deniability,Reputation,Financial Markets,Experiment
    Date: 2022
  9. By: Julian Lamprecht; Marcel Thum
    Abstract: We consider ultimatum bargaining over the provision of a public good. Offer-maker and responder can delegate their decisions to agents, whose actual decision rules are opaque. We show that the responder will benefit from strategic opacity, even with bilateral delegation. The incomplete information created by strategic opacity choices does not lead to inefficient negotiation failure in equilibrium. Inefficiencies arise from an inefficient provision level. While an agreement will always be reached, the public good provision will, however, fall short of the socially desirable level. Compared to unilateral delegation, bilateral delegation is never worse from a welfare perspective.
    Keywords: public good provision, transparency, opacity, bargaining, incomplete information, delegation
    JEL: C78 H40
    Date: 2022
  10. By: Zachary Breig (School of Economics, University of Queensland, Brisbane, Australia); Allan Hernández-Chanto (School of Economics, University of Queensland, Brisbane, Australia); Declan Hunt (Reserve Bank of Australia)
    Abstract: We experimentally implement security-bid auctions, which are used around the world to sell projects that generate large future cash flows that are stochastic. Buyers make bids with debt and equity, linking payments to the project’s ex-post revenue. Contrary to the theoretical predictions, we find that debt auctions generate more revenue than equity auctions. This is explained by overbidding in debt auctions. Furthermore, we find that second-price equity auctions generate slightly more surplus than other treatments and that noisy bidding has differential effects depending on the format. We also implement informal auctions and find that buyers use equity more often than theory predicts and that sellers successfully choose dominant bids.
    Keywords: auctions; experiment; securities; debt; equity; risk preferences
    JEL: C70 C90 D44 D47
    Date: 2022–08
  11. By: Indrajit Saha; Veeraruna Kavitha
    Abstract: We consider a financial network represented at any time instance by a random liability graph which evolves over time. The agents connect through credit instruments borrowed from each other or through direct lending, and these create the liability edges. These random edges are modified (locally) by the agents over time, as they learn from their experiences and (possibly imperfect) observations. The settlement of the liabilities of various agents at the end of the contract period (at any time instance) can be expressed as solutions of random fixed point equations. Our first step is to derive the solutions of these equations (asymptotically and one for each time instance), using a recent result on random fixed point equations. The agents, at any time instance, adopt one of the two available strategies, risky or risk-free investments, with an aim to maximize their returns. We aim to study the emerging strategies of such replicator dynamics that drives the financial network. We theoretically reduce the analysis of the complex system to that of an appropriate ordinary differential equation (ODE). Using the attractors of the resulting ODE we showed that the replicator dynamics converges to one of the two pure evolutionary stable strategies (all risky or all risk-free agents); one can have mixed limit only when the observations are imperfect. We verified our theoretical findings using exhaustive Monte Carlo simulations. We established that the dynamics avoid the emergence of the systemic-risk regime (where majority default).
    Date: 2022–06

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