nep-gth New Economics Papers
on Game Theory
Issue of 2023‒02‒06
fifteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Suspecting Collusion By Ceesay, Muhammed
  2. Convergence Rates in Resource Allocation Games By Daniel Graydon Stephenson
  3. Behavioral forces driving information unraveling By Benndorf, Volker; Kübler, Dorothea; Normann, Hans-Theo
  4. A Bertrand duopoly game with differentiated products reconsidered By Xiaoliang Li; Bo Li
  5. Selective Memory of a Psychological Agent By Jeanne Hagenbach; Frédéric Koessler
  6. Norms and the Evolution of Leaders Followership By Antonio Cabrales; Esther Hauk
  7. Overbidding and underbidding in package allocation problems By Marina Núñez; Francisco Robles
  8. istance in Beliefs and Individually-Consistent Sequential Equilibrium. By Gisèle Umbhauer; Arnaud Wolff
  9. Time-Consistent Implementation in Macroeconomic Games By Jean Barthélemy; Eric Mengus
  10. Ideological Consistency and Valence By Enriqueta Aragonès; Dimitrios Xefteris
  11. Information Cascades and Threshold Implementation: Theory and An Application to Crowdfunding By Lin William Cong; Yizhou Xiao
  12. Tariff Wars, Unemployment, and Income Distribution By Elias Dinopoulos; Gunnar Heins; Bulent Unel
  13. Price Destabilizing Speculation: The Role of Strategic Limit Orders By Suman Banerjee; Ravi Jagannathan; Kai Wang
  14. CBDC: Banking and Anonymity By Yuteng Cheng; Ryuichiro Izumi
  15. Lying Aversion and Vague Communication: An Experimental Study By Keh-Kuan Sun; Stella Papadokonstantaki

  1. By: Ceesay, Muhammed
    Abstract: How much does it hurt seller revenue if some bidders know that others are colluding? Using a simple model of first and second price Independent Private Value auctions with uniformly distributed values where a single bidder knows privately of the existence of collusion by others, we show that this knowledge leads him to bid shading (weakly) in the first price auction compared to what he would have bid otherwise. This in turn yields the result that the second price auction dominates the first price auction in terms of seller revenue. This contrasts results from the literature showing that under our framework, when bidding is done while the presence of colluding bidders is common knowledge, the first price auction dominates the second price auction.
    Keywords: Almost-All-Inclusive Ring, Informational Structures
    JEL: D44
    Date: 2023
  2. By: Daniel Graydon Stephenson (Department of Economics, VCU School of Business)
    Abstract: If Nash equilibrium corresponds to the long run outcome of a dy- namic process, its usefulness as a predictive tool may depend on the rate of convergence to equilibrium. This paper experimentally tests theoretical predictions about the rate of convergence to equilibrium in settings where agents simultaneously allocate resources between contests with complementary prizes. More responsive contest suc- cess functions give agents a stronger incentive to best respond, but learning models predict slower convergence to equilibrium under more responsive success functions because of the incentives agents face out of equilibrium. Consistent with learning model predictions, we observe slower convergence under more responsive success functions, suggest- ing that disequilibrium incentives contain useful information about the rate of convergence to equilibrium in empirical settings.
    Keywords: convergence; equilibrium; allocation; contest; learning
    JEL: C92 C73 D74 Q34
    Date: 2023–01
  3. By: Benndorf, Volker; Kübler, Dorothea; Normann, Hans-Theo
    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, decisionmaking 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 find 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
  4. By: Xiaoliang Li; Bo Li
    Abstract: In this paper, we explore a dynamic Bertrand duopoly game with differentiated products, where firms are boundedly rational and consumers are assumed to possess an underlying CES utility function. We mainly focus on two distinct degrees of product substitutability. Several tools based on symbolic computations such as the triangular decomposition method and the PCAD method are employed in the analytical investigation of the model. The uniqueness of the non-vanishing equilibrium is proved and rigorous conditions for the local stability of this equilibrium are established for the first time. Most importantly, we find that increasing the substitutability degree or decreasing the product differentiation has an effect of destabilization for our Bertrand model, which is in contrast with the relative conclusions for the Cournot models. This finding could be conducive to the revelation of the essential difference between dynamic Cournot and Bertrand oligopolies with differentiated goods. In the special case of identical marginal costs, we derive that lower degrees of product differentiation mean lower prices, higher supplies, lower profits, and lower social welfare. Furthermore, complex dynamics such as periodic orbits and chaos are reported through our numerical simulations.
    Date: 2023–01
  5. By: Jeanne Hagenbach (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Frédéric Koessler (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We consider a single psychological agent whose utility depends on his action, the state of the world, and the belief he holds about that state. The agent is initially informed about the state and decides whether to memorize it, otherwise he has no recall. We model the memorization process by a multi-self game in which the privately-informed first self voluntarily discloses information to the second self, who has identical preferences and acts upon the disclosed information. We show that, for broad categories of psychological utility functions, there exists an equilibrium in which every state is voluntarily memorized. In contrast, if there are exogenous failures in the memorization process, the agent always memorizes states selectively. In this case, we characterize the partially informative equilibria for common classes of psychological utilities.
    Keywords: Multi-self games, Disclosure games, Imperfect recall, Selective memory, Motivated beliefs, Psychological games, Anticipatory utility
    Date: 2022–02
  6. 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.
    Date: 2023–01
  7. By: Marina Núñez (Universitat de Barcelona and Barcelona Economic Analysis Team (BEAT)); Francisco Robles (ABC Economics)
    Abstract: We study the problem of allocating packages of different objects to a group of bidders. A rule is overbidding-proof if no bidder has incentives to bid above his actual valuations. We prove that if an efficient rule is overbidding-proof, then each winning bidder pays a price between his winning bid and what he would pay in a Vickrey auction for the same package. In counterpart, the set of rules that satisfy underbidding-proofness always charge a price below the corresponding Vickrey price. A new characterization of the Vickrey allocation rule is provided with a weak form of strategy-proofness. The Vickrey rule is the only rule that satisfies efficiency, individual rationality, overbidding-proofness and underbidding-proofness. Our results are also valid on the domains of monotonic valuations and of single-minded bidders. Finally, a rule is introduced that is overbidding proof and its payoffs are bidder-optimal in the core of the auction game according the reported valuations.
    Keywords: Strategy-proofness, overbidding, Vickrey allocation rule.
    JEL: D44 D47
    Date: 2023
  8. By: Gisèle Umbhauer; Arnaud Wolff
    Abstract: The concept of Individually-Consistent Sequential-Equilibrium broadens the concept of Sequential Equilibrium by allowing players to have different beliefs on potential deviations. This heterogeneity spontaneously gives rise to a notion of distance between beliefs. Yet, studying distance between beliefs in a strategic context reveals to be intricate. Announced beliefs may be different from revealed beliefs and the meaning of distance depends on the role assigned to beliefs. If out-of-equilibrium beliefs help getting a larger payoff at equilibrium, then we might need to reconsider the traditional definition of sequential rationality: more than just requiring that players behave optimally at every information set given their beliefs and the strategies played by others players, we might additionally require that there does not exist another perturbation scheme that is individually-consistent and which provides higher payoffs to the players.
    Keywords: AGM-Consistency, Distance in Beliefs, Heterogeneous Beliefs, Individually-Consistent-Sequential Equilibrium, Revealed Beliefs.
    JEL: C72
    Date: 2022
  9. By: Jean Barthélemy; Eric Mengus
    Abstract: The commitment ability of governments is neither infinite nor zero but intermediate. In this paper, we determine the commitment ability that a government needs to implement a unique equilibrium outcome and rule out undesired self-fulfilling expectations. We first show that, in a large class of static macroeconomic games, the government can implement any time-consistent equilibrium with any low level of commitment ability. We then show that this result may not be robust to imperfect information, fixed costs or repeated interactions. We finally derive implications for models of bailouts, inflation bias, and capital taxation.
    Keywords: Implementation, Limited Commitment, Policy Rules
    JEL: C73 E58 E61 G28
    Date: 2022
  10. By: Enriqueta Aragonès; Dimitrios Xefteris
    Abstract: We study electoral competition between two win-motivated candidates, considering that voters care both about the valence and the ideological consistency of the competing candidates. When valence asymmetries are not too large we find a unique pure strategy Nash equilibrium in which (i) platform polarization (i.e. the distance between the candidates’ policy proposals) is solely determined by the strength of preferences for consistency, and (ii) the expected policy outcome may move to the right as the valence of the leftist candidate increases. When valence differences are large, a mixed equilibrium emerges: the high-valence left-wing candidate chooses a moderate right policy and the low-valence right-wing candidate responds, usually, with an extreme right position and, occasionally, with a moderate left one. Our analysis provides novel insights regarding candidates’ flip-flopping incentives, and parties’ motives to nominate low-quality candidates.
    Keywords: valence, ideology, consistency, flip-flopping, electoral competition, mixed equilibrium
    JEL: D72
    Date: 2022–12
  11. By: Lin William Cong; Yizhou Xiao
    Abstract: Economic interactions, such as crowdfunding, often involve sequential actions, observational learning, and contingent project implementation. We incorporate all-or-nothing thresholds in a canonical model of information cascades. Early supporters effectively delegate their decisions to a "gatekeeper, " resulting in uni-directional cascades without herding on rejections. Project proposers consequently can charge higher prices. Proposal feasibility, project selection, and information aggregation all improve, even when agents can wait. Equilibrium outcomes depend on the crowd size, and project implementation and information aggregation achieve efficiency in the large-crowd limit. Our key insights remain robust under thresholds in dollar amounts, alternative equilibrium selection, among other model extensions.
    JEL: D81 D83 G12 G14
    Date: 2023–01
  12. By: Elias Dinopoulos; Gunnar Heins; Bulent Unel
    Abstract: We propose a multi-country model with occupational choice, heterogeneous firms, unemployment, and revenue-generating tariffs to study the aggregate and distributional consequences of tariff wars in a unified framework. Motivated by the 2018 global tariff, we calibrate the model to fit a global economy with four countries, the United States, the European Union, China and the Rest of the World. If governments maximize aggregate welfare, the average optimal tariff and the average Nash-equilibrium tariff are about 16 percent. Multilateral trade negotiations lead to zero cooperative tariffs and free trade. No country can win a trade war. If governments adopt a political-economy perspective and maximize a weighted sum of entrepreneurial and worker interests with weights incorporating factual "autonomous rate" tariffs, then trade talks lead to positive cooperative tariffs in the range of 14 percent for the U.S. to 43 percent for China, and tend to increase unemployment and income inequality.
    Date: 2021–03
  13. By: Suman Banerjee; Ravi Jagannathan; Kai Wang
    Abstract: Using a two-period model of a commodity market with a large number of atomistic consumers and two strategic sellers, we show that a speculator with access to storage can lower the market price while buying and raise the price while selling by clever use of limit, stop-loss, and market orders. The speculator profits from it. This creates price volatility even though there is no demand or supply uncertainty, and all market participants act rationally. Prices are more volatile when the speculator has access to free disposal. Such speculative activity makes the strategic sellers worse off and consumers better off. Our results are robust to introducing demand uncertainty, having more than one large speculator, and more than two strategic sellers. When there are multiple strategic sellers consumers can be worse off.
    JEL: G0 G1 G10 G12 G18 G19
    Date: 2023–01
  14. By: Yuteng Cheng (Bank of Canada); Ryuichiro Izumi (Department of Economics, Wesleyan University)
    Abstract: What is the optimal design of anonymity in a central bank digital currency (CBDC)? We examine this question in the context of bank lending by building a stylized model of anonymity in payment instruments. We specify the anonymity of payment instruments in two dimensions: The bank has no information about the entrepreneur’s investment, and the bank has less control over the entrepreneur’s profits. An instrument with higher anonymity may discourage the bank from lending, and thus, the entrepreneur strategically chooses payment instruments. Our analysis shows that introducing a CBDC with modest anonymity can improve welfare in one equilibrium, but can also destroy valuable information in bank lending, leading to inefficient lending in another equilibrium. Our results suggest that central banks should either make a CBDC highly anonymous or share CBDC data with banks to eliminate this bad equilibrium.
    Keywords: CBDC, Anonymity, Bank lending
    JEL: E42 E58 G28
    Date: 2023–01
  15. By: Keh-Kuan Sun; Stella Papadokonstantaki
    Abstract: An agent may strategically employ a vague message to mislead an audience's belief about the state of the world, but this may cause the agent to feel guilt or negatively impact how the audience perceives the agent. Using a novel experimental design that allows participants to be vague while at the same time isolating the internal cost of lying from the social identity cost of appearing dishonest, we explore the extent to which these two types of lying costs affect communication. We find that participants exploit vagueness to be consistent with the truth, while at the same time leveraging the imprecision to their own benefit. More participants use vague messages in treatments where concern with social identity is relevant. In addition, we find that social identity concerns substantially affect the length and patterns of vague messages used across the treatments.
    Date: 2023–01

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