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on Game Theory |
| By: | Gill, David (Purdue University); Rosokha, Yaroslav (Purdue University) |
| Abstract: | We aim to understand the role and evolution of beliefs in the indefinitely repeated prisoner's dilemma (IRPD). To do so, we elicit beliefs about the supergame strategies chosen by others. We find that heterogeneity in beliefs and changes in beliefs with experience are central to understanding behavior and learning in the IRPD. Beliefs strongly predict cooperation, initial beliefs match behavior quite well, most subjects choose strategies that perform well given their beliefs, and beliefs respond to experience while becoming more accurate over time. Finally, we uncover a novel mechanism whereby trusting subjects learn to cooperate through their interaction with experience. |
| Keywords: | infinitely repeated prisoner’s dilemma, cooperation, optimism, belief elicitation, supergame strategies, experimentation, trust, experiment |
| JEL: | C72 C73 C91 D91 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15492&r= |
| By: | Ludovic Tangpi; Shichun Wang |
| Abstract: | Recent financial bubbles such as the emergence of cryptocurrencies and "meme stocks" have gained increasing attention from both retail and institutional investors. In this paper, we propose a game-theoretic model on optimal liquidation in the presence of an asset bubble. Our setup allows the influx of players to fuel the price of the asset. Moreover, traders will enter the market at possibly different times and take advantage of the uptrend at the risk of an inevitable crash. In particular, we consider two types of crashes: an endogenous burst which results from excessive selling, and an exogenous burst which cannot be anticipated and is independent from the actions of the traders. The popularity of asset bubbles suggests a large-population setting, which naturally leads to a mean field game (MFG) formulation. We introduce a class of MFGs with varying entry times. In particular, an equilibrium will depend on the entry-weighted average of conditional optimal strategies. To incorporate the exogenous burst time, we adopt the method of progressive enlargement of filtrations. We prove existence of MFG equilibria using the weak formulation in a generalized setup, and we show that the equilibrium strategy can be decomposed into before-and-after-burst segments, each part containing only the market information. We also perform numerical simulations of the solution, which allow us to provide some intriguing results on the relationship between the bubble burst and equilibrium strategies. |
| Date: | 2022–09 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2209.04001&r= |
| By: | Charoensook, Banchongsan |
| Abstract: | Most literature in strategic network formation shows that there is a substantial tension between stability and efficiency. In this note, I show that such is not the case in the two way flow model with small decay studied by Bala and Goyal (2000a) and De Jaegher and Kamphorst (2015). Specifically, I show that every link receiver in a Nash network serves as an efficient trans-mitter of information. I also generalize this result to the case of player hetero-geneity and then provide a fine-detail characterization of effiicient networks. |
| Keywords: | Industrial Organization, Research Methods/ Statistical Methods |
| Date: | 2022–05–24 |
| URL: | http://d.repec.org/n?u=RePEc:ags:feemwp:324041&r= |
| By: | Longjian Li; Alexis Akira Toda |
| Abstract: | We study a game between $N$ job applicants who incur a cost $c$ (relative to the job value) to reveal their type during interviews and an administrator who seeks to maximize the probability of hiring the best. We define a full learning equilibrium and prove its existence, uniqueness, and optimality. In equilibrium, the administrator accepts the current best applicant $n$ with probability $c$ if $n |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2208.05897&r= |
| By: | Zhiqi Chen (Department of Economics, Carleton University) |
| Abstract: | Partitioned pricing is a common pricing practice that divides the price of a product into a base price and one or more mandatory surcharges. From the perspective of standard economic theory, this practice is puzzling because rational buyers care about the full price they pay for a product rather than whether and how the price is partitioned into various components. This paper develops a theory of partitioned pricing using a duopoly model where the owner of each firm determines the level of surcharge but delegates the setting of base price to a manager. It shows that in equilibrium both firms choose partitioned pricing over conventional all-inclusive pricing. Moreover, partitioned pricing leads to higher full prices and larger profits than all-inclusive pricing. Most surprisingly, collusion on surcharge without any coordination on base price is as profitable as collusion on all-inclusive price. Classification-L11, L22, L41 |
| Keywords: | partitioned pricing, surcharges, duopoly, strategic delegation, collusion |
| Date: | 2022–02–03 |
| URL: | http://d.repec.org/n?u=RePEc:car:carecp:22-02&r= |
| By: | Gächter, Simon (University of Nottingham); Starmer, Chris (University of Nottingham); Tufano, Fabio (University of Nottingham) |
| Abstract: | We introduce "group cohesion" to study the economic relevance of social relationships in team production. We operationalize measurement of group cohesion, adapting the "oneness scale" from psychology. A series of experiments, including a pre-registered replication, reveals strong positive associations between group cohesion and performance assessed in weak-link coordination games, with high-cohesion groups being very likely to achieve superior equilibria. In exploratory analysis, we identify beliefs rather than social preferences as the primary mechanism through which factors proxied by group cohesion influence group performance. Our evidence provides proof-of-concept for group cohesion as a useful tool for economic research and practice. |
| Keywords: | social relationships, group cohesion, oneness, coordination, weak-link game, experiments, real groups |
| JEL: | C92 D91 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp15512&r= |
| By: | Doruk Cetemen; Gonzalo Cisternas; Aaron Kolb; S Viswanathan |
| Abstract: | Two activists with correlated private positions in a firm’s stock, trade sequentially before simultaneously exerting effort that determines the firm’s value. We document the existence of a novel linear equilibrium in which an activist’s trades have positive sensitivity to her block size, but such orders are not zero on average: the leader activist manipulates the price to induce the follower to acquire a larger position and thus add more value. We examine the implications of this equilibrium for market outcomes and discuss its connection with the prominent phenomenon of “wolf-pack” activism—multiple hedge funds engaging in parallel with a target firm. We also explore the possibility of other equilibria where the activists trade against their initial positions. |
| Keywords: | activism; insider trading; noisy signaling; price manipulation; hedge funds |
| JEL: | D82 G14 G23 |
| Date: | 2022–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:94740&r= |
| By: | Alger, Ingela |
| Abstract: | The 50-year old definition of an evolutionarily stable strategy provided a key tool for theorists to model ultimate drivers of behavior in social interactions. For decades economists ignored ultimate drivers and used models in which individuals choose strate-gies based on their preferences. This article summarizes some key findings in the literature on evolutionarily stable preferences, which in the past three decades has proposed models that combine the two approaches: Nature equips individuals with preferences, which deter-mine their strategy choices, which in turn determines evolutionary success. The objective is to highlight complementarities and potential avenues for future collaboration between biologists and economists. |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127268&r= |
| By: | Panova, Elena |
| Abstract: | We consider the problem of sharing the cost of efficient uncongested tree-network among users with differentiated willingness to pay for the good supplied through the network. We nd that the associated value sharing problem is convex, hence, the core is large and we axiomatize a new, computationally simple core selection based on the idea of proportionality. |
| Keywords: | sharing network cost; core; proportional allocation |
| JEL: | C71 |
| Date: | 2022–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:127271&r= |
| By: | Francesc Dilmé (University of Bonn) |
| Abstract: | This paper studies trade in endogenously evolving markets exhibiting few traders at any given point in time. Traders arrive in the market and bargain until they complete a trade. We find that, unlike large markets, small markets feature trade delay and price dispersion, even when sellers and buyers are homogeneous and matching frictions are small. We characterize transaction prices as a function of the endogenous evolution of the market composition and economic conditions, providing several novel comparative statics results. Our analysis highlights the need to incorporate sub-market structures into the theoretical study of job, real estate, and rental markets, where trade opportunities are typically constrained by both the geographical location and individual characteristics of each trader. |
| Keywords: | Small dynamic markets, decentralized bargaining, trade delay. |
| JEL: | C73 C78 D53 G12 |
| Date: | 2022–08 |
| URL: | http://d.repec.org/n?u=RePEc:ajk:ajkdps:193&r= |
| By: | Penelope Buckley (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); Daniel Llerena (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) |
| Abstract: | Using a contextualised common pool resource framework, individual energy consumption choices are studied. Individuals are nudged towards the socially optimal level of consumption by the use of a happy (sad) face if they are underconsuming (overconsuming). A price is set to incentivise a second group to choose the level of consumption observed in the nudge treatment in order to quantify the nudge via an equivalent price. Across all 10 periods, consumption is significantly lower in treatment groups compared to control groups without nudges and prices. The price treatment leads to an average level of consumption above the Nash equilibrium. There are implications for policy makers as the nudge treatment performs as well, on average, as an equivalent price without the implied loss of welfare, and is understood and integrated into subjects' decision making quicker than an equivalent price. However, there is a tendency for both the nudge and the price to reinforce existing consumption behaviour as those who overconsume continue to overconsume. |
| Keywords: | Energy conservation,Financial incentive,Laboratory experiment,Nudge |
| Date: | 2022 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-03765755&r= |