nep-gth New Economics Papers
on Game Theory
Issue of 2023‒01‒23
23 papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Sequential Sampling Equilibrium By Duarte Gon\c{c}alves
  2. Strategic Observational Learning By Dimitri Migrow
  3. Festival Games: Inebriated and Sober Altruists By Giuseppe Attanasi; James C. Cox; Vjollca Sadiraj
  4. Mobility Decisions, Economic Dynamics And Epidemic By Giorgio Fabbri; Salvatore Federico; Davide Fiaschi; Fausto Gozzi
  5. An individual evolutionary learning model meets Cournot By Jasmina Arifovic; Liang Dia; Nobuyuki Hanaki
  6. Strong Solutions to Submodular Mean Field Games with Common Noise and Related McKean-Vlasov FBSDES By Dianetti, Jodi
  7. Cross-game Learning and Cognitive Ability in Auctions By Giebe, Thomas; Ivanova-Stenzel, Radosveta; Kocher, Martin G.; Schudy, Simeon
  8. Waiting for My Neighbors By Sidartha Gordon; Emeric Henry; Pauli Murto
  9. Behavioral Forces Driving Information Unraveling By Benndorf, Volker; Kübler, Dorothea; Normann, Hans-Theo
  10. A dynamic theory of spatial externalities By Raouf Boucekkine; Giorgio Fabbri; Salvatore Federico; Fausto Gozzi
  11. Influence of rationality levels on dynamics of heterogeneous Cournot duopolists with quadratic costs By Xiaoliang Li; Yihuo Jiang
  12. Lying to Individuals versus Lying to Groups By Angelova, Vera; Tolksdorf, Michel
  13. Intertemporal Hedging and Trade in Repeated Games with Recursive Utility By Kochov, Asen; Song, Yangwei
  14. A Characterization of Maximum Nash Welfare for Indivisible Goods By Warut Suksompong
  15. Screening with Persuasion By Dirk Bergemann; Tibor Heumann; Stephen Morris
  16. A Stackelberg reinsurance-investment game under $\alpha$-maxmin mean-variance criterion and stochastic volatility By Guohui Guan; Zongxia Liang; Yilun Song
  17. Counter-Terrorism Efforts by Government in case of hostage taking by negotiation and bargaining: A Game Theoretic Analysis By HARICHANDAN, AISHWARYA
  18. Spontaneous Norms in Law and Economics: A Sketch Typology By Zdybel, Karol B.
  19. Truth-telling Outcomes in a Reputational Cheap-talk Game with Binary Types By Dohui Woo
  20. Optimal Refund Mechanism By Qianjun Lyu
  21. Approximate Bayesian Implementation and Exact Maxmin Implementation: An Equivalence By Song, Yangwei
  22. Aggregate Information and Organizational Structures By Celik, Gorkem; Shin, Dongsoo; Strausz, Roland
  23. Test Design Under Falsification By Eduardo Perez-Richet; Vasiliki Skreta

  1. By: Duarte Gon\c{c}alves
    Abstract: This paper introduces an equilibrium framework based on sequential sampling in which players face strategic uncertainty over their opponents' behavior and acquire information to resolve it. Sequential sampling equilibrium delivers a disciplined model featuring an endogenous distribution of choices, beliefs, and decision times, that not only rationalizes well-known deviations from Nash equilibrium, but also makes novel predictions supported by existing data. It grounds a relationship between empirical learning and strategic sophistication, and generates stochastic choice through randomness inherent to sampling, without relying on indifference or choice mistakes. Further, it provides a rationale for Nash equilibrium when information costs vanish.
    Date: 2022–12
  2. By: Dimitri Migrow
    Abstract: This paper characterizes equilibrium behavior of forward-looking agents in a simple repeated-action setting of social learning with two privately informed players. If players have access to a symmetric signal structure (in a sense to be made precise), then myopic strategies always constitute an equilibrium. Myopic equilibrium is unique under symmetric threshold strategies, and under the simplest symmetric non-monotonic strategies. Under arbitrary threshold strategies, only myopic equilibrium can fully aggregate dispersed private information. If the players are asymmetric and the game is infinite, there is no equilibrium in myopic strategies, for any positive degree of patience.
    Date: 2022–12
  3. By: Giuseppe Attanasi; James C. Cox; Vjollca Sadiraj
    Abstract: We run a staged field experiment during three concerts in the South of Italy, characterized by the same traditional music and a comparable average level of alcohol consumption by attendees. Individual blood alcohol concentration (BAC) is measured with electronic breathalyzers. The experimental games proposed to concert attendees are mini-games of payoff equivalent private and common property games (Cox et al. 2009). We find that alcohol consumption leads to less pro-social behavior independently of the version of the game, and that the rate of efficient choices is more than twice as high in the private property game than in the common property game. Efficiency of play decreases with alcohol consumption, increases with belief about the percentage of participants who are not inebriated, and is higher for tourists than local participants.
    Keywords: Staged Field Experiment, Alcohol, Private Property Game, Common Property Game, Reciprocity, Tourists
    JEL: C72 C93 Z10 Z32
    Date: 2023–01
  4. By: Giorgio Fabbri (Univ. Grenoble Alpes, CNRS, INRAE, Grenoble INP, GAEL, 38000 Grenoble, France); Salvatore Federico (Universita degli Studi di Genova, Dipartimento di Economia); Davide Fiaschi (Universita degli Studi di Pisa, Dipartimento di Economia e Management); Fausto Gozzi (Dipartimento di Economia e Finanza, LUISS Guido Carli, Roma)
    Abstract: We propose a model, which nests a susceptible-infected-recovered-deceased (SIRD) model of epidemic into a dynamic macroeconomic equilibrium framework with agents’ mobility. The latter affect both their income and their probability of infecting and being infected. Strategic complementarities among individual mobility choices drive the evolution of aggregate economic activity, while infection externalities caused by individual mobility affect disease diffusion. The continuum of rational forward-looking agents coordinates on the Nash equilibrium of a discrete time, finite-state, infinite-horizon Mean Field Game. We prove the existence of an equilibrium and provide a recursive construction method for the search of an equilibrium(a), which also guides our numerical investigations. We calibrate the model by using Italian experience on COVID-19 epidemic and we discuss policy implications.
    Keywords: mean field game, strategic complementarities, ESIRD, COVID-19
    JEL: E1 H0 I1 C72 C73 C62
    Date: 2022–11–30
  5. By: Jasmina Arifovic; Liang Dia; Nobuyuki Hanaki
    Abstract: In this paper, we extend the individual evolutionary learning model by incorporating other-regarding considerations and apply the model to some Cournot games. Using the model fitted to the experimental data of a repeated 3-player Cournot game (with nonlinear cost and demand functions), we construct out-of-sample predictions regarding the ``feedback effects'' and ``number effects'' and test these using data gathered via newly conducted experiments. The prediction regarding the feedback effect is only partially confirmed, being observed for 3- and 4-player games but not the 2-player game. The prediction regarding the number effect is also partially confirmed in that while the model predicts the number effect to be observed with detailed and not aggregate feedback, the effect is observed with both types of feedback.
  6. By: Dianetti, Jodi (Center for Mathematical Economics, Bielefeld University)
    Abstract: This paper studies multidimensional mean field games with common noise and the related system of McKean-Vlasov forward-backward stochastic differential equations de- riving from the stochastic maximum principle. We first propose some structural conditions which are related to the submodularity of the underlying mean field game and are a sort of opposite version of the well known Lasry-Lions monotonicity. By reformulating the represen- tative player minimization problem via the stochastic maximum principle, the submodularity conditions allow to prove comparison principles for the forward-backward system, which cor- respond to the monotonicity of the best reply map. Building on this property, existence of strong solutions is shown via Tarski’s fixed point theorem, both for the mean field game and for the related McKean-Vlasov forward-backward system. In both cases, the set of solutions enjoys a lattice structure, with minimal and maximal solutions which can be constructed by iterating the best reply map or via the fictitious play algorithm.
    Keywords: Mean field games with common noise, FBSDE, Mean field FBSDE with conditional law, Stochastic Maximum principle, Submodular cost function: Tarski's fixed point theorem, ficitious play
    Date: 2023–01–09
  7. By: Giebe, Thomas (Linnaeus University); Ivanova-Stenzel, Radosveta (TU Berlin); Kocher, Martin G. (University of Vienna, CESifo and University of Gothenburg); Schudy, Simeon (LMU Munich and CESifo)
    Abstract: Overbidding in sealed-bid second-price auctions (SPAs) has been shown to be persistent and associated with cognitive ability. We study experimentally to what extent cross-game learning can reduce overbidding in SPAs, taking into account cognitive skills. Employing an order-balanced design, we use first-price auctions (FPAs) to expose participants to an auction format in which losses from high bids are more salient than in SPAs. Experience in FPAs causes substantial cross-game learning for cognitively less able participants but does not affect overbidding for the cognitively more able. Vice versa, experiencing SPAs before bidding in an FPA does not substantially affect bidding behavior by the cognitively less able but, somewhat surprisingly, reduces bid shading by cognitively more able participants, resulting in lower profits in FPAs. Thus, 'cross-game learning' may rather be understood as 'cross-game transfer', as it has the potential to benefit bidders with lower cognitive ability whereas it has little or even adverse effects for higher-ability bidders.
    Keywords: cognitive ability; cross-game learning; cross-game transfer; experiment; auction; heuristics; first-price auctions; second-price auctions;
    JEL: C72 C91 D44 D83
    Date: 2022–12–27
  8. By: Sidartha Gordon (LEDa - Laboratoire d'Economie de Dauphine - IRD - Institut de Recherche pour le Développement - Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres - CNRS - Centre National de la Recherche Scientifique, Université Paris Dauphine-PSL - PSL - Université Paris sciences et lettres); Emeric Henry (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Pauli Murto (Aalto University)
    Abstract: We introduce a neighborhood structure in a waiting game, where the payoff of stopping increases when neighbors stop. We show that the dynamic evolution of the network can take the form of either a shrinking network, where players at the edges stop first, or a fragmenting network where interior players do. In addition to the coordination inefficiency standard in waiting games, the neighborhood structure gives rise to an additional inefficiency linked to the order in which players stop. We discuss an application to technology adoption in networks.
    Keywords: Waiting games, Networks, Inefficiencies
    Date: 2021–06–10
  9. By: Benndorf, Volker (Goethe-Universität Frankfurt); Kübler, Dorothea (WZB Berlin, TU Berlin and CESifo); Normann, Hans-Theo (Universität Düsseldorf)
    Abstract: Information unraveling is an elegant theoretical argument suggesting that private information may be fully and voluntarily surrendered. The experimental literature has, however, failed to provide evidence of complete unraveling and has suggested senders' limited depth of reasoning as one behavioral explanation. In our novel design, decision-making is essentially sequential, which removes the requirements on subjects' reasoning and should enable subjects to play the standard Nash equilibrium with full revelation. However, our design also facilitates coordination on equilibria with partial unraveling which exist with other-regarding preferences. Our data confirm that the new design is successful in that it avoids miscoordination entirely. Roughly half of the groups fully unravel whereas other groups exhibit monotonic outcomes with partial unraveling. Altogether, we nd more information unraveling with the new design, but there is clear evidence that other-regarding preferences do play a role in impeding unraveling.
    Keywords: data protection; inequality aversion; information revelation; level-k reasoning;
    JEL: C72 C90 C91
    Date: 2022–12–22
  10. By: Raouf Boucekkine (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique, UCL IRES - Institut de recherches économiques et sociales - UCL - Université Catholique de Louvain = Catholic University of Louvain); Giorgio Fabbri (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); Salvatore Federico (DEPS - Dipartimento di Economia Politica e Statistica - UNISI - Università degli Studi di Siena = University of Siena); Fausto Gozzi (Dipartimento di Economia e Finanza [Roma] - LUISS - Libera Università Internazionale degli Studi Sociali Guido Carli [Roma])
    Abstract: In this paper, we revisit the theory of spatial externalities. In particular, we depart in several respects from the important literature studying the fundamental pollution free riding problem uncovered in the associated empirical works. First, instead of assuming ad hoc pollution diffusion schemes across space, we consider a realistic spatiotemporal law of motion for air and water pollution (diffusion and advection). Second, we tackle spatiotemporal non-cooperative (and cooperative) differential games. Precisely, we consider a circle partitioned into several states where a local authority decides autonomously about its investment, production and depollution strategies over time knowing that investment/production generates pollution, and pollution is transboundary. The time horizon is infinite. Third, we allow for a rich set of geographic heterogeneities across states while the literature assumes identical states. We solve analytically the induced non-cooperative differential game under decentralization and fully characterize the resulting long-term spatial distributions. We further provide with full exploration of the free riding problem, reflected in the so-called border effects. In particular, net pollution flows diffuse at an increasing rate as we approach the borders, with strong asymmetries under advection, and structural breaks show up at the borders. We also build a formal case in which a larger number of states goes with the exacerbation of pollution externalities. Finally, we explore how geographic discrepancies affect the shape of the border effects.
    Keywords: Spatial externalities,Environmental federalism,Transboundary pollution,Differential games in continuous time and space,Infinite dimensional optimal control problems
    Date: 2022–03
  11. By: Xiaoliang Li; Yihuo Jiang
    Abstract: This paper is intended to investigate the dynamics of heterogeneous Cournot duopoly games, where the first players adopt identical gradient adjustment mechanisms but the second players are endowed with distinct rationality levels. Based on tools of symbolic computations, we introduce a new approach and use it to establish rigorous conditions of the local stability for these models. We analytically investigate the bifurcations and prove that the period-doubling bifurcation is the only possible bifurcation that may occur for all the considered models. The most important finding of our study is regarding the influence of players' rational levels on the stability of heterogeneous duopolistic competition. It is derived that the stability region of the model where the second firm is rational is the smallest, while that of the one where the second firm is boundedly rational is the largest. This fact is counterintuitive and contrasts with relative conclusions in the existing literature. Furthermore, we also provide numerical simulations to demonstrate the emergence of complex dynamics such as periodic solutions with different orders and strange attractors.
    Date: 2022–12
  12. By: Angelova, Vera (TU Berlin); Tolksdorf, Michel (TU Berlin)
    Abstract: We investigate experimentally whether individuals or groups are more lied to, and how lying depends on the group size and the monetary loss inflicted by the lie. We employ an observed cheating game, where an individual's misreport of a privately observed number can monetarily benefit her while causing a loss to either a single individual, a group of two or a group of five. As the privately observed number is known to the experimenter, the game allows to study both, whether the report deviates from the observed number and also by how much. Treatments either vary the individual loss caused by a given lie (keeping the total loss constant), or the total loss (keeping the individual loss constant). We find more lies toward individuals than toward groups. Liars impose a larger loss with their lie when that loss is split among group members rather than borne individually. The size of the group does not affect lying behavior.
    Keywords: cheating; lying; groups; observed cheating game; laboratory experiment;
    JEL: C91 D82 D91
    Date: 2022–12–15
  13. By: Kochov, Asen (University of Rochester); Song, Yangwei (HU Berlin)
    Abstract: Recursive preferences have found widespread application in representative-agent asset-pricing models and general equilibrium. A majority of these applications exploit two decision-theoretic properties not shared by the standard model of intertemporal choice: (i) agents care about the intertemporal distribution of risk and (ii) rates of time preference, rather than being exogenously fixed, may vary with the level of consumption. We investigate what these features imply in the context of a repeated strategic interaction. Specifically, we identify novel opportunities for the players to manage risk and trade intertemporally, and characterize when such opportunities lead to an expansion of the feasible set of payoffs. Sharp implications for equilibrium behavior and the folk theorem are also deduced.
    Keywords: recursive utility; repeated games; correlation aversion; endogenous discounting; intertemporal trade; intertemporal hedging;
    Date: 2022–12–28
  14. By: Warut Suksompong
    Abstract: In the allocation of indivisible goods, the maximum Nash welfare (MNW) rule, which chooses an allocation maximizing the product of the agents' utilities, has received substantial attention for its fairness. We characterize MNW as the only additive welfarist rule that satisfies envy-freeness up to one good. Our characterization holds in the simplest setting of two agents.
    Date: 2022–12
  15. By: Dirk Bergemann; Tibor Heumann; Stephen Morris
    Abstract: We consider a general nonlinear pricing environment with private information. The seller can control both the signal that the buyers receive about their value and the selling mechanism. We characterize the optimal menu and information structure that jointly maximize the seller's profits. The optimal screening mechanism has finitely many items even with a continuum of values. We identify sufficient conditions under which the optimal mechanism has a single item. Thus the seller decreases the variety of items below the efficient level as a by-product of reducing the information rents of the buyer.
    Date: 2022–12
  16. By: Guohui Guan; Zongxia Liang; Yilun Song
    Abstract: This paper investigates a Stackelberg game between an insurer and a reinsurer under the $\alpha$-maxmin mean-variance criterion. The insurer can purchase per-loss reinsurance from the reinsurer. With the insurer's feedback reinsurance strategy, the reinsurer optimizes the reinsurance premium in the Stackelberg game. The financial market consists of cash and stock with Heston's stochastic volatility. Both the insurer and reinsurer maximize their respective $\alpha$-maxmin mean-variance preferences in the market. The criterion is time-inconsistent and we derive the equilibrium strategies by the extended Hamilton-Jacobi-Bellman equations. Similar to the non-robust case in Li and Young (2022), excess-of-loss reinsurance is the optimal form of reinsurance strategy for the insurer. The equilibrium investment strategy is determined by a system of Riccati differential equations. Besides, the equations determining the equilibrium reinsurance strategy and reinsurance premium rate are given semi-explicitly, which is simplified to an algebraic equation in a specific example. Numerical examples illustrate that the game between the insurer and reinsurer makes the insurance more radical when the agents become more ambiguity aversion or risk aversion. Furthermore, the level of ambiguity, ambiguity attitude, and risk attitude of the insurer (reinsurer) have similar effects on the equilibrium reinsurance strategy, reinsurance premium, and investment strategy.
    Date: 2022–12
    Abstract: This paper talks about the short term and long-term terrorist and the scenario of hostage taking. It takes into consideration whether the government should negotiate with them or not. It goes on to look into the expenditure by government on anti-terrorist activities depending upon the incidence of attacks and the political stability.
    Keywords: Counter-terrorism; Game Theory; Government; Private players; Vigilance; Complements; Substitutes.
    JEL: D74 Z00
    Date: 2022–11–22
  18. By: Zdybel, Karol B.
    Abstract: This article offers a concise typology of spontaneous norms - i.e., norms that are formed or sustained through decentralized collective behavior in a community. The typology combines three criteria for identifying spontaneous norms: (i) implicit formation of (customary) rules, as opposed to explicit formation; (ii) enforcement through decentralized sanctioning actions, as opposed to enforcement by a special social agent; (iii) private interpretation of compliance with rules, as opposed to the presence of a public interpreter of compliance. The paper also suggests how identified types can be modeled game-theoretically as repeated games. It is argued that structural differences between various types of spontaneous norms can be best understood as differences in the sequence of play in a stage game. Further, the typology is illustrated with examples from legal history and legal anthropology. Supposedly dissimilar systems of norms (e.g., customary international law and primitive law; norms of warfare and domestic social norms) are shown to exhibit structural resemblance.
    Keywords: spontaneous norms, custom, customary law, social norms, comparative legal history, typology
    JEL: B41 K00 N40 O17
    Date: 2023
  19. By: Dohui Woo
    Abstract: Experts with different abilities of information acquisition who receive multiple pieces of signals over time can choose the timing of recommendation and whether to be truthful in a later period, when a recommendation is made in an earlier period. Giving inconsistent recommendations may be seen as a sign of a poor information acquisition ability, but it can also work as a "safety net" that prevents the worst reputation. This study uses a simple binary-ability framework to capture this aspect and proposes equilibriums where all information is delivered truthfully on the path. I examine when such an equilibrium exists, and compare such equilibriums with those where only partial information is delivered; it is found that the former brings higher expected payoffs to the expert than the latter under a certain range of parameters when the utility function is strictly convex in the reputation.
    Keywords: truth-telling, reputation concerns, cheap talks
    JEL: D72 L14
    Date: 2022–12
  20. By: Qianjun Lyu (Institute for Microeconomics, University of Bonn)
    Abstract: This paper studies the optimal refund mechanism when an uninformed buyer can privately acquire information about his valuation over time. In principle, a refund mechanism can specify the odds that the seller requires the product returned while issuing a (partial) refund, which we call stochastic return. It guarantees the seller a strictly positive minimum revenue and facilitates intermediate buyer learning. In the benchmark model, stochastic return is sub-optimal. The optimal refund mechanism takes simple forms: the seller either deters learning via a well-designed non-refundable price or encourages full learning and escalates price discrimination via free return. This result is robust to both good news and bad news framework.
    Keywords: buyer learning, refund contract, information design, implementable mechanism
    JEL: D82 D86 L15
    Date: 2022–12
  21. By: Song, Yangwei (HU Berlin)
    Abstract: This paper provides a micro-foundation for approximate incentive compatibility using ambiguity aversion. In particular, we propose a novel notion of approximate interim incentive compatibility, approximate local incentive compatibility, and establish an equivalence between approximate local incentive compatibility in a Bayesian environment and exact interim incentive compatibility in the presence of a small degree of ambiguity. We then apply our result to the implementation of efficient allocations. In particular, we identify three economic settings—including ones in which approximately efficient allocations are implementable, ones in which agents are informationally small, and large double auctions—in which efficient allocations are approximately locally implementable when agents are Bayesian. Applying our result to those settings, we conclude that efficient allocations are exactly implementable when agents perceive a small degree of ambiguity.
    Keywords: approximate local incentive compatibility; ambiguity aversion; efficiency; informational size; modified VCG mechanism; double auction;
    Date: 2022–12–28
  22. By: Celik, Gorkem (ESSEC Business School and THEMA Research Center); Shin, Dongsoo (Santa Clara University); Strausz, Roland (HU Berlin)
    Abstract: We study information flows in an organization with a top management (principal) and multiple subunits (agents) with private information that determines the organization's aggregate efficiency. Under centralization, eliciting the agents' private information may induce the principal to manipulate aggregate information, which obstructs an effective use of information for the organization. Under delegation, the principal concedes more information rent, but is able to use the agents' information more effectively. The trade-off between the organizational structures depends on the likelihood that the agents are efficient. Centralizing information flows is optimal when such likelihood is low. Delegation, by contrast, is optimal when it is high.
    Keywords: agency; aggregate information; organization design;
    JEL: D86 L23 L25
    Date: 2022–12–27
  23. By: Eduardo Perez-Richet (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research - CEPR); Vasiliki Skreta (University of Texas at Austin [Austin], UCL - University College of London [London], CEPR - Center for Economic Policy Research - CEPR)
    Abstract: We study the optimal design of tests with manipulable inputs. Tests take a unidimensional state of the world as input and output, an informative signal to guide a receiver's approve or reject decision. The receiver wishes to only approve states that comply with her baseline standard. An agent with a preference for approval can covertly falsify the state of the world at a cost. We characterize receiver‐optimal tests and show they rely on productive falsification by compliant states. They work by setting a more stringent operational standard, and granting noncompliant states a positive approval probability to deter them from falsifying to the standard. We also study how falsification‐detection technologies improve optimal tests. They allow the designer to build an implicit cost of falsification into the test, in the form of signal devaluations. Exploiting this channel requires enriching the signal space.
    Keywords: Information Design, Falsification, Tests, Manipulation, Cheating, Persuasion
    Date: 2022–05–27

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