nep-gth New Economics Papers
on Game Theory
Issue of 2023‒04‒10
eighteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. Persuasion with endogenous misspecified beliefs By Eliaz, Kfir; Spiegler, Ran; Thysen, Heidi C.
  2. Pulse in collapse: a game dynamics experiment By Wang Yijia; Wang Zhijian
  3. Product quality and product compatibility in network industries By Domenico Buccella; Luciano Fanti; Luca Gori
  4. Strategic product compatibility in network industries By Domenico Buccella; Luciano Fanti; Luca Gori
  5. Mobility decisions, economic dynamics and Epidemic By Giorgio Fabbri; Salvatore Federico; Davide Fiaschi; Fausto Gozzi
  6. Higher-order beliefs in a Sequential Social Dilemma By Anujit Chakraborty; Evan Calford
  7. Efficient Public Good Provision in a Multipolar World By Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Renaud Foucart; Sonali Sen Gupta
  8. Choice Flexibility and Long-Run Cooperation By Gabriele Camera; Jaehong Kim; David Rojo Arjona
  9. What about the others? Conditional cooperation, climate change perception and ecological actions By Leonardo Becchetti; Gianluigi Conzo; Francesco Salustri
  10. The price of cost-effectiveness thresholds By Brekke, Kurt R.; Dalen, Dag Morten; Straume, Odd Rune
  11. Comparison Shopping: Learning Before Buying From Duopolists By Brian C. Albrecht; Mark Whitmeyer
  12. Information Favoritism and Scoring Bias in Contests By Shanglyu Deng; Hanming Fang; Qiang Fu; Zenan Wu
  13. Dynamic Information Provision: Rewarding the Past and Guiding the Future By Ian Ball
  14. Licensing a product innovation in a Cournot industry By Antelo, Manel; Bru, Lluís
  15. Designing Interrogations By Alessandro Ispano; Peter Vida
  16. Reform for Sale: a Common Agency Model with Moral Hazard Frictions By Lefebvre, Perrin; Martimort, David
  17. Identity, Communication, and Conflict: An Experiment By Bhaumik, Sumon; Chowdhury, Subhasish M.; Dimova, Ralitza; Fromell, Hanna
  18. The Role of Emotions in Public Goods Games with and without Punishment Opportunities By Charles N Noussair; Steven Tucker; Yilong Xu; Adriana Breaban

  1. By: Eliaz, Kfir; Spiegler, Ran; Thysen, Heidi C.
    Abstract: We study a two-action, two-state pure persuasion game in which the receiver has non-rational expectations. The sender can add ambiguity to his message by pooling it with other messages. This can be likened to selective redaction of the original message. The receiver knows the sender's message strategy but not his redaction strategy, and uses only the former to draw inferences from the redacted message. We characterize the highest probability of persuasion attainable by the sender under these conditions.
    Keywords: misspecified beliefs; non-rational expectations; persuasion; Advanced Investigator grant no. 692995; 1779091
    JEL: J1
    Date: 2021–05–01
  2. By: Wang Yijia; Wang Zhijian
    Abstract: The collapse process is a constitutional sub-process in the full finding Nash equilibrium process. We conducted laboratory game experiments with human subjects to study this process. We observed significant pulse signals in the collapse process. The observations from the data support the completeness and the consistency of the game dynamics paradigm.
    Date: 2023–02
  3. By: Domenico Buccella; Luciano Fanti; Luca Gori
    Abstract: Making use of an appropriate game-theoretic approach, this article develops a two-stage game in a Cournot duopoly in network industries, in which firms strategically choose whether to produce compatible goods. Quality differentiation significantly affects the sub-game perfect Nash equilibrium (SPNE) of the game: (i) the network effect acts differently between low- and high-quality firms depending on their compatibility choice; (ii) the unique SPNE is to produce compatible (resp. incompatible) goods if the network externality is positive (resp. negative); however, this equilibrium can be Pareto inefficient, and the high-quality firm is worse off; (iii) there is room for a side payment from the high- to the low-quality firm to deviate towards incompatibility (resp. compatibility) under positive (resp. negative) network externality. The social welfare outcomes corresponding to the SPNE are also pinpointed.
    Keywords: Network externality, Product compatibility, Cournot duopoly, Quality differential
    JEL: L1 L2 D4
    Date: 2023–03–01
  4. By: Domenico Buccella; Luciano Fanti; Luca Gori
    Abstract: The degree of compatibility is a crucial feature of network goods. This article considers the degree of product compatibility as a strategic variable in a Cournot duopoly with network consumption externalities. For doing this, it develops a non-cooperative “compatibility decision game” (CDG) in which choosing whether letting products being (in)compatible occurs at the first stage. When compatibility is costless, the unique (Pareto efficient) sub-game perfect Nash equilibrium (SPNE) of the CDG predicts that both firms choose product compatibility. When there exist quasi-fixed costs of compatibility, the spectrum of SPNE of the CDG greatly increases. The equilibrium outcomes change depending on whether the extent of product compatibility is endogenous (i.e., it is a profit-maximising variable) or exogenous (e.g., it is given by technical constraints) on the firm side. In the former case, the emerging SPNE implies ranging from a unique regime to multiple regimes of (in)compatibility allowing the emergence of different scenarios: deadlock, prisoner’s dilemma and coordination game. In the latter case, the CDG can also become an anti-coordination game. This allows us to provide a novel explanation for the well-known and widespread case according to which Apple products in the computer market (based on macOS) can also be used with Windows OS, but Microsoft products (based on Windows OS) cannot be used with macOS. The article also pinpoints the welfare outcomes corresponding to the SPNE.
    Keywords: Network externality, Product compatibility, Cournot duopoly, Quasi-fixed costs
    JEL: L1 L3 D4
    Date: 2023–03–01
  5. By: Giorgio Fabbri; Salvatore Federico; Davide Fiaschi; Fausto Gozzi
    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
  6. By: Anujit Chakraborty; Evan Calford (Department of Economics, University of California Davis)
    Abstract: Do experimental subjects have consistent first and higher-order beliefs about others? How does any inconsistency affect strategic decisions? We introduce a simple four-player sequential social dilemma where actions reveal first and higher-order beliefs. The unique sub-game perfect Nash equilibrium (SPNE) is observed less than 5% of the time, even though our diagnostic treatments show that a majority of our subjects are self-interested, higher-order rational and have accurate first-order beliefs. In our data, strategic play deviates substantially from Nash predictions because first-order and higher-order beliefs are inconsistent for most subjects. We construct and operationalize an epistemic model of belief hierarchies to estimate that less than 10% of subjects have consistent first and higher-order beliefs.
    Date: 2023–03–22
  7. By: Chowdhury Mohammad Sakib Anwar; Jorge Bruno; Renaud Foucart; Sonali Sen Gupta
    Abstract: We model a public goods game with groups, position uncertainty, and observational learning. Contributions are simultaneous within groups, but groups play sequentially based on their observation of an incomplete sample of past contributions. We show that full cooperation between and within groups is possible with self-interested players on a fixed horizon. Position uncertainty implies the existence of an equilibrium where groups of players conditionally cooperate in the hope of influencing further groups. Conditional cooperation implies that each group member is pivotal, so that efficient simultaneous provision within groups is an equilibrium.
    Keywords: Public Goods, Groups, Position Uncertainty, Voluntary Contributions
    JEL: C72 D82 H41
    Date: 2023
  8. By: Gabriele Camera (Chapman University); Jaehong Kim (Xiamen University); David Rojo Arjona (Chapman University)
    Abstract: Understanding how incentives and institutions help scaling up cooperation is important, especially when strategic uncertainty is considerable. Evidence suggests that this is challenging even when full cooperation is theoretically sustainable thanks to indefinite repetition. In a controlled social dilemma experiment, we show that adding partial cooperation choices to the usual binary choice environment can raise cooperation and efficiency. Under suitable incentives, partial cooperation choices enable individuals to cheaply signal their desire to cooperate, reducing strategic uncertainty. The insight is that richer choice sets can form the basis of a language meaningful for coordinating on cooperation.
    Keywords: experiments, repeated games, social dilemmas, strategy estimation
    JEL: C70 C90 D03 E02
    Date: 2023
  9. By: Leonardo Becchetti; Gianluigi Conzo; Francesco Salustri
    Abstract: Climate challenge can be modelled as a multiplayer prisoner’s dilemma where ecological action – e.g., purchasing an electric car or adopting sustainable life-styles – is costly in terms of economic resources, time, and effort. Even though social benefit is maximised with everyone taking ecological actions, no actions from all players is a Nash equilibrium assuming players are self-interested. In this paper we analyse how this ecological dilemma is affected by people’s perception. Using the European Social Survey, we study how urgent the climate threat is perceived by respondents and their beliefs about other countries’ actions. Theoretical predictions suggest that the former increases, while the latter does not affect individual willingness to act ecologically. Our empirical findings however show that both factors positively affect willingness to act. We interpret the positive effect of country action on responsibility to act as conditional cooperation and show that the effect is weaker as social capital increases.
    Keywords: climate change, perception, ecological actions, social dilemma, conditional cooperation
    JEL: H41 Q54 Q58
    Date: 2023–03
  10. By: Brekke, Kurt R. (Dept. of Economics, Norwegian School of Economics and Business Administration); Dalen, Dag Morten (BI Norwegian Business School); Straume, Odd Rune (University of Minho and University of Bergen)
    Abstract: Health systems around world are increasingly adopting cost-effectiveness (CE) analysis to inform decisions about access and reimbursement. We study how CE thresholds imposed by a health plan for granting reimbursement affect drug producers pricing incentives and patients access to new drugs. Analysing a sequential pricing game between an incumbent drug producer and a potential entrant with a new drug, we show that CE thresholds may have adverse effects for payers and patients. A stricter CE threshold may induce the incumbent to switch pricing strategy from entry accommodation to entry deterrence, limiting patients access to the new drug. Otherwise, irrespective of whether entry is deterred or accommodated, a stricter CE threshold is never pro-competitive and may in fact facilitate a collusive outcome with higher prices of both drugs. Compared to a laissez-faire policy, the use of CE thresholds can only increase the surplus of a health plan if it leads to entry deterrence in which the price reduction by the incumbent necessary to deter entry outweighs the health loss to patients not getting access to the new drug.
    Keywords: Pharmaceuticals; Health Plans; Cost-effectiveness analysis; ICER; Therapeutic competition
    JEL: I11 I18 L13 L65
    Date: 2023–03–13
  11. By: Brian C. Albrecht; Mark Whitmeyer
    Abstract: We explore a model of duopolistic competition in which consumers flexibly learn about the fit--both relative and absolute--of each competitor's product. When information is cheap, increasing the cost of information decreases consumer welfare; but when information is expensive, this relationship flips: cheaper information hurts consumers. As information frictions vanish, the limiting equilibrium is ex post efficient, in contrast to the monopoly model studied by Ravid, Roesler, and Szentes (2022).
    Date: 2023–02
  12. By: Shanglyu Deng; Hanming Fang; Qiang Fu; Zenan Wu
    Abstract: Two potentially asymmetric players compete for a prize of common value, which is initially unknown, by exerting efforts. A designer has two instruments for contest design. First, she decides whether and how to disclose an informative signal of the prize value to players. Second, she sets the scoring rule of the contest, which varies the relative competitiveness of the players. We show that the optimum depends on the designer’s objective. A bilateral symmetric contest—in which information is symmetrically distributed and the scoring bias is set to offset the initial asymmetry between players—always maximizes the expected total effort. However, the optimal contest may deliberately create bilateral asymmetry—which discloses the signal privately to one player, while favoring the other in terms of the scoring rule—when the designer is concerned about the expected winner’s effort. The two instruments thus exhibit complementarity, in that the optimum can be made asymmetric in both dimensions even if the players are ex ante symmetric. Our results are qualitatively robust to (i) affiliated signals and (ii) endogenous information structure. We show that information favoritism can play a useful role in addressing affirmative action objectives.
    JEL: C72 D44 D82
    Date: 2023–03
  13. By: Ian Ball
    Abstract: I study the optimal provision of information in a long-term relationship between a sender and a receiver. The sender observes a persistent, evolving state and commits to send signals over time to the receiver, who sequentially chooses public actions that affect the welfare of both players. I solve for the sender's optimal policy in closed form: the sender reports the value of the state with a delay that shrinks over time and eventually vanishes. Even when the receiver knows the current state, the sender retains leverage by threatening to conceal the future evolution of the state.
    Date: 2023–03
  14. By: Antelo, Manel; Bru, Lluís
    Abstract: We study how a firm licenses a product improvement innovation to its rival in the final market. Contrary to what happens with fixed-fee licensing or per-unit royalty licensing, pure ad-valorem royalty licensing is optimal but is welfare reducing. On welfare grounds, fixed-fee licensing dominates per-unit royalty agreements, but has the disadvantage that firms sometimes fail to reach an agreement if licensing deals are restricted to feature fixed fees. A simple rule for a second-best optimal policy on technology licensing is proposed.
    Keywords: Product innovation, licensing, Cournot competition, welfare
    JEL: D43 D45
    Date: 2023–01–10
  15. By: Alessandro Ispano; Peter Vida (Université de Cergy-Pontoise, THEMA)
    Abstract: We provide a model of interrogations with two-sided asymmetric information. The suspect knows his status as guilty or innocent and the likely strength of the law enforcer’s evidence, which is informative about the suspect’s status and may also disprove lies. We compare prosecution errors in the equilibrium of the one-shot interrogation and in the optimal mechanism under full commitment. We describe a “back and forth” interrogation with disclosure of the evidence and discretionary forgiveness of lies that implements the optimum in equilibrium without any commitment.
    Keywords: lie, evidence, questioning, confession, law, prosecution, disclosure, persuasion, two-sided asymmetric information
    JEL: D82 D83 C72 K40
    Date: 2023
  16. By: Lefebvre, Perrin; Martimort, David
    Abstract: Lobbying competition is viewed as a delegated common agency game under moral hazard. Several interest groups try to influence a policy-maker who exerts effort to increase the probability that a reform be implemented. With no restriction on the space of contribution schedules, all equilibria perfectly reflect the principals’ preferences over alternatives. As a result, lobbying competition reaches efficiency. Unfortunately, such equilibria require that the policy-maker pays an interest group when the latter is hurt by the reform. When payments remain non-negative, inducing effort requires leaving a moral hazard rent to the decision-maker. Contributions schedules no longer reflect the principals preferences, and the unique equilibrium is inefficient. Free-riding across congruent groups arises and the set of groups active at equilibrium is endogenously derived. Allocative efficiency and redistribution of the aggregate surplus are linked altogether and both depend on the set of active principals, as well as on the groups size.
    Keywords: Pluralistic Politics; Lobbying; Common Agency; Moral Hazard
    JEL: D72 D82 H10
    Date: 2023–03–10
  17. By: Bhaumik, Sumon; Chowdhury, Subhasish M.; Dimova, Ralitza; Fromell, Hanna
    Abstract: We investigate experimentally the effects of information about native/immigrant identity, and the ability to communicate a self-chosen personal characteristic towards the rival on conflict behavior. In a two-player individual contest with British and Immigrant subjects in the UK we find that neither information about identity nor communicating self-characteristics significantly affect the average level of conflict. Both of those, however, significantly affect players' strategies, in the sense of the extent they involve conflict over time. Overall, the results indicate that inter-personal communication may help to mitigate high intensity conflicts when the identities are common knowledge among rivals.
    Keywords: Conflict, Experiment, Identity, Immigrant, Communication
    JEL: C72 C91 D72
    Date: 2023
  18. By: Charles N Noussair (University of Arizona); Steven Tucker (University of Waikato); Yilong Xu (Utrecht University); Adriana Breaban (Erasmus University Rotterdam)
    Abstract: We consider the emotional correlates of activity in the Public Good game when monetary and non-monetary punishments are available, and when no punishment is possible. In our experiment, emotions are measured using Face Reading software that tracks the emotional content of facial expressions in real time. When no punishment is possible, greater anger and more negative emotional valence correlate with learning that one has contributed more than others. Lower valence and happiness, in turn, is associated with reducing one’s cooperation in the next period. When non-monetary punishment in the form of expressed disapproval is possible, positive emotional valence is associated with cooperation, punishment of free-riders, and an increase in cooperation from one period to the next. Negative valence, on the other hand, is associated with the receipt of punishment, suggesting that the expression of disapproval inherent in the non-monetary punishment was well understood and had an effect on the emotions of the recipient. The data support the conjecture that the reinforcement that positive emotion provides is what allows non-monetary punishment to increase cooperation. In contrast, when monetary punishment is available, emotional correlates are less consistent, suggesting that monetary punishment is less reliant on emotions to be effective. Instead, it appears to increase cooperation solely by reducing the monetary incentives to free-ride.
    Keywords: Public Goods, Sanctions, Emotions
    JEL: D91 H41 C91
    Date: 2023–03–29

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