nep-gth New Economics Papers
on Game Theory
Issue of 2023‒05‒01
sixteen papers chosen by
Sylvain Béal
Université de Franche-Comté

  1. The punctuality stability of the Nash equilibrium: the advantage of a late player in potential and aggregative games By Vasily V. Gusev
  2. Schedule Situations and their Cooperative Games. By Léa Munich
  3. On the Stochasticity of Ultimatum Games By Tianxiao Qi; Bin Xu; Jinshan Wu; Nicolaas J. Vriend
  4. Cooperative dilemmas with binary actions and multiple players By Peña, Jorge; Nöldeke, Georg
  5. Auctions with Externalities: An Experimental Study By Chulyoung Kim; Sang-Hyun Kim; Jinhyuk Lee; Jaeok Park
  6. Characterizing the Feasible Payoff Set of OLG Repeated Games By Daehyun Kim; Chihiro Morooka
  7. Information Transmission in Voluntary Disclosure Games By Avi Lichtig; Ran Weksler
  8. Prosocial Behavior and the Individual Normative Standard of Fairness within a Dynamic Context: Experimental Evidence By Mekvabishvili, Rati; Mekvabishvili, Elguja; Natsvaladze, Marine; Sirbiladze, Rusudan; Mzhavanadze, Giorgi; Deisadze, Salome
  9. The shirker’s dilemma and the prospect of cooperation in large groups By Peña, Jorge; Heifetz, Aviad; Nöldeke, Georg
  10. Game analysis between startup and banks By Nik Hadiyan Binti Nik Azman
  11. Price Competition and Endogenous Product Choice in Networks: Evidence From the US Airline Industry By Christian Bontemps; Cristina Gualdani; Kevin Remmy
  12. Target versus budget reverse auctions: an online experiment using the strategy method By Adrien Coiffard; Raphaële Préget; Mabel Tidball
  13. On the Relationship between Adaptation and Mitigation By Ralph Winkler
  14. Prediction, human decision and liability rules, CRED Working paper No 2022-06 By Marie Obidzinski; Yves Oytana
  15. Platform Design Biases in Ad-Funded Two-Sided Markets By Jay Pil Choi; Doh-Shin Jeon
  16. Endogenous Lemon Markets: Risky Choices and Adverse Selection By Avi Lichtig; Ran Weksler

  1. By: Vasily V. Gusev (National Research University Higher School of Economics)
    Abstract: If all players in a game employ Nash-equilibrium strategies, then no single player benefits from changing their strategy alone. In real games however, some players may intentionally arrive late and get a payoff greater than at the equilibrium. To wit, it sometimes pays to wait for competitors to announce their prices and then set the price for one’s own product. The motivation for intentional tardiness is the advantage of making the last move. Can it be arranged so that no player arrives in the game late intentionally? Responding to this challenge, we suggest forming a punctually stable Nash-equilibrium strategy profile. In this study, we investigate whether such a strategy profile exists in potential, aggregative, and symmetric games. What is remarkable about this study is that in some game-theoretical settings all-player punctuality can be achieved without penalizing late arrivals.
    Keywords: Nash equilibrium, punctuality stability, potential games, aggregative games, symmetric games
    JEL: C70 C72 C79
    Date: 2023
  2. By: Léa Munich
    Abstract: We introduce a new problem of cost allocation resulting from a scheduling problem, and we study it by a new class of cooperative games, the schedule situations and the associated games. In a schedule situation several players share a non-rival common-pool infrastructure. Its consumption is possible during several periods. The consumption needs of each player are described by the set of minimal schedules satisfying this player. The use of this infrastructure induces a fixed per-period cost normalized to one unit. Therefore, one objective is to minimize the overall total number of consumption time periods in order to satisfy all players. For this purpose, the schedule game gives for each coalition of players the minimal number of time periods needed to satisfy the consumption needs of all its members. We provide a characterization of the class of schedule games: a game is a schedule game if and only if it is monotonic, sub-additive, integer-valued and all nonempty coalitions have positive worths. Moreover, specific schedule games can be linked to other classes of operational research games: the airport games and the carpool games. We also introduce Equal pooling allocations, which in some cases coincide with the Shapley value. Next we develop a natural sufficient condition to guarantee the non-emptiness of the core of a schedule game. Finally, we provide an application of the the schedule situations and the associated games to the allocation of cost of the mail carrier route in France.
    Keywords: RSchedule, OR-game, Cost allocation, Equal pooling allocations, Core.
    JEL: C71 L87
    Date: 2023
  3. By: Tianxiao Qi (Beijing Normal University); Bin Xu (Zhejiang Gongshang University); Jinshan Wu (Beijing Normal University); Nicolaas J. Vriend (Queen Mary University of London)
    Abstract: Brenner and Vriend (2006) argued (experimentally and theoretically) that one should not expect proposers in ultimatum games to learn to converge to the subgame perfect Nash equilibrium offer, as finding the optimal offer is a hard learning problem for (boundedly-rational) proposers. In this paper we show that providing the proposers with given (fixed) acceptance probabilities (essentially eliminating the learning task) leads to somewhat lower offers, but still substantially above the monetary payoff-maximizing offer. By using a Risk Attitude test and a Probability Matching test, we show experimentally that the proposers’ attitude with respect to risk, as well as their ability to interpret and deal with probabilities may matter when it comes to making UG offers. Thus, we argue that the lack of convergence to the minimum offers in ultimatum games may be related to the inherent stochasticity of typical UG experiments, highlighting a possible cause of such deviations that seems a complementary explanation to existing ones.
    Keywords: Ultimatum game, Stochasticity, Risk Attitude, Probability Matching
    JEL: C72 C73
    Date: 2021–04–12
  4. By: Peña, Jorge; Nöldeke, Georg
    Abstract: The prisoners’ dilemma, the snowdrift game, and the stag hunt are simple two-player games that are often considered as prototypical examples of cooperative dilemmas across disciplines. However, surprisingly little consensus exists about the precise mathematical meaning of the words “cooperation” and “cooperative dilemma” for these and other binary-action games, in particular when considering interactions among more than two players. Here, we propose new definitions of these terms and explore their consequences on the equilibrium structure of cooperative dilemmas in relation to social optimality. We find that a large class of multi-player prisoners’ dilemmas and snowdrift games behave as their two-player counterparts, namely, they are characterized by a unique equilibrium where cooperation is always underprovided, regardless of the number of players. Multi-player stag hunts allow for the peculiarity of excessive cooperation at equilibrium, unless cooperation is such that it induces positive individual externalities. Our framework and results unify, simplify, and extend previous work on the structure and properties of binary-action multi-player cooperative dilemmas.
    Date: 2023–04–11
  5. By: Chulyoung Kim (Yonsei University); Sang-Hyun Kim (Yonsei University); Jinhyuk Lee (Korea University); Jaeok Park (Yonsei University)
    Abstract: We consider a simple auction setting where there are three bidders and one of the bidders creates positive or negative externalities on the other two bidders. We theoretically and experimentally compare two auction formats, the first-price auction (FPA) and the second-price auction (SPA), in our setting. Using a refinement of undominated Nash equilibria, we analyze equilibrium bids and outcomes in the two auction formats. Our experimental results show that overbidding relative to equilibrium bids is prevalent, especially in the SPA, and this leads to higher revenues and lower efficiency in the SPA than in the FPA, especially under negative externalities. With incomplete information, we observe similar tendencies, while we obtain no evidence for learning effects.
    Keywords: auctions; externalities; experiments; overbidding; efficiency.; auctions; externalities; experiments; overbidding; efficiency.
    JEL: C91 D44 D62
    Date: 2023–04
  6. By: Daehyun Kim; Chihiro Morooka
    Abstract: We study the set of feasible payoffs of OLG repeated games. We first provide a complete characterization of the feasible payoffs. Second, we provide a novel comparative statics of the feasible payoff set with respect to players' discount factor and the length of interaction. Perhaps surprisingly, the feasible payoff set becomes smaller as the players' discount factor approaches to one.
    Date: 2023–03
  7. By: Avi Lichtig; Ran Weksler
    Abstract: Does a better-informed sender transmit more accurate information in equilibrium? We show that, in a general class of voluntary disclosure games, unlike other strategic communication environments, the answer is positive. If the sender’s evidence is more Blackwell informative, then the receiver’s equilibrium utility increases. We apply our main result to show that an uninformed sender who chooses a test from a Blackwell-ordered set does so efficiently.
    Keywords: Evidence, Informativeness
    JEL: D82 D83 L15
    Date: 2023–03
  8. By: Mekvabishvili, Rati; Mekvabishvili, Elguja; Natsvaladze, Marine; Sirbiladze, Rusudan; Mzhavanadze, Giorgi; Deisadze, Salome
    Abstract: In this paper, we present an experimental study of prosocial behavior and individual normative standards of fairness under the novel context of a dynamic dictator game. In addition, we explore the role of informal institutions in shaping individuals’ cooperation within the domain of a public goods game under its direct exposure and in subsequent prosociality beyond its reach in the domain of the dictator game. We find that dictators’ average offers in our study are quite close to the typical results found in other dictator game experiments and they are quite stable over two periods. However, dictators become more selfish after they have had the experience of playing a public goods game with peer punishment. Interestingly, we found that dictators act significantly more selfishly relative to their own declared individual normative standard of fairness. Furthermore, our experiment reveals a large share of antisocial punishment in the public goods game and a peer-to-peer punishment mechanism to be an inefficient tool to promote cooperation, however in an environment that rules out a suitable normative consensus and collective choice.
    Keywords: dictator game; individual normative standard of fairness; dynamics of behavior; spillover; prosociality; public goods game;
    JEL: C73 C92 D02 H41
    Date: 2023–02–04
  9. By: Peña, Jorge; Heifetz, Aviad; Nöldeke, Georg
    Abstract: Cooperation usually becomes harder to sustain as groups become larger because in-centives to shirk increase with the number of potential contributors to a collective action. But is this always the case? Here we study a binary-action cooperative dilemma where a public good is provided only when at most a fixed number of players shirk from a costly, cooperative task. An example is a group of prey which succeeds to drive a predator away only if few group members refrain from engaging in conspicuous mobbing. We find that at the stable polymorphic equilibrium, which exists when the cost of cooperation is low enough, the probability of cooperating increases with group size and reaches a limit of one when the group size tends to infinity. Nevertheless, increasing the group size may increase or decrease the probability that the public good is provided at such equilibrium. We also prove that the expected payoff to individuals at the stable equilibrium (i.e., their fitness) decreases with group size. For costs of cooperation that are low enough, both the probability of provision of the public good and the expected payoff converge to positive values in the limit of large group sizes. However, we also find that the basin of attraction of the stable polymorphic equilibrium is a decreasing function of group size and shrinks to zero in the limit of very large groups. Overall, we demonstrate non-trivial comparative statics with respect to group size in a simple collective action problem.
    Date: 2023–04–11
  10. By: Nik Hadiyan Binti Nik Azman (Universiti Sains Malaysia, Malaysia Author-2-Name: Zhang Chengzhuo Author-2-Workplace-Name: Universiti Sains Malaysia, Malaysia Author-3-Name: Author-3-Workplace-Name: Author-4-Name: Author-4-Workplace-Name: Author-5-Name: Author-5-Workplace-Name: Author-6-Name: Author-6-Workplace-Name: Author-7-Name: Author-7-Workplace-Name: Author-8-Name: Author-8-Workplace-Name:)
    Abstract: " Objective - Due to information asymmetry, banks cannot know all the information about a company during the financing process. Compared to large firms, start-ups face more difficulties in obtaining debt financing. In order to investigate how the game between start-ups and banks maximizes the benefits of debt financing, this study is based on the game process between start-ups and banks in complete and incomplete information markets. Methodology/Technique - The model assumes deterministic and relatively simple financial decisions, and game theory provides a way to gain insight into the mechanistic phenomenon of debt financing for start-ups by allowing for the inclusion of asymmetric information and strategic interactions in the analysis. Finding - The game process of debt financing for start-ups is studied from a game theoretical perspective to reveal the optimal decisions of both parties in the game process under the influence of information asymmetries, i.e., the basic laws governing the operation of debt financing for start-ups and the important criteria and procedures to ensure that debt financing works correctly. Novelty - The study shows that high-quality start-ups are more likely to receive bank loans than low-quality firms that are willing to pay high-interest rates. Type of Paper - Empirical"
    Keywords: Asymmetric Information theory; Game Theory; Debt Financing; Startup.
    JEL: C7 C72
    Date: 2023–03–31
  11. By: Christian Bontemps; Cristina Gualdani; Kevin Remmy
    Abstract: We develop a two-stage game in which competing airlines first choose the networks of markets to serve in the first stage before competing in price in the second stage. Spillovers in entry decisions across markets are allowed, which accrue on the demand, marginal cost, and fixed cost sides. We show that the second-stage parameters are point identified, and we design a tractable procedure to set identify the first-stage parameters and to conduct inference. Further, we estimate the model using data from the domestic US airline market and find significant spillovers in entry. In a counterfactual exercise, we evaluate the 2013 merger between American Airlines and US Airways. Our results highlight that spillovers in entry and post-merger network readjustments play an important role in shaping post-merger outcomes.
    Keywords: Endogenous Market Structure, Networks, Airlines, Oligopoly, Product Repositioning, Mergers, Remedies
    JEL: D43 L14 L22 L40 L93
    Date: 2023–03
  12. By: Adrien Coiffard (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier); Raphaële Préget (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier); Mabel Tidball (CEE-M - Centre d'Economie de l'Environnement - Montpellier - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - Institut Agro Montpellier - Institut Agro - Institut national d'enseignement supérieur pour l'agriculture, l'alimentation et l'environnement - UM - Université de Montpellier)
    Abstract: Reverse auctions are used in various fields by public or corporate buyers to purchase goods and services from multiple sellers at the best price. Unlike in selling auctions, in reverse auctions a budget constraint rather than a target quantity is often announced by the auctioneer. However, in auction theory no optimal bidding strategy has yet been found in the case when a budget constraint is announced. Here we compare the two auction formats in an online experiment with 329 participants. We use the strategy method to obtain participants' bidding strategies from which we run exhaustive simulations of auction outcomes. This innovative methodology allows to overcome the issue of randomness of the auction outcome related to bidders' values. When each bidder has a single unit to sell, from the buyer's perspective, we find that, on average, the budget-constrained auction format outperforms the target-constrained auction format.
    Keywords: Reverse auctions, Online experiments, Strategy Method, Budget constraint, Target constraint.
    Date: 2023–04–03
  13. By: Ralph Winkler
    Abstract: Many poor countries are ill-adapted to the current leave alone a changing future climate, because they lack the necessary financial means to invest in efficient and costeffective safeguarding measures. International endeavours to fund institutions, such as the Green Climate Fund, to provide financial assistance in this respect have not been as successful has hoped for. In this paper, I set up a simple two-player two-stage model, in which a rich country (North) can invest into adaptation measures in a poor country (South). I show that a necessary condition for North to invest into adaptation investments in South is that this results in decreasing equilibrium emissions of South. I find that this can only happen if the funded adaptation measures also have a flavor of mitigation, i.e., apart from safeguarding South from climate damages they have to reduce South’s marginal abatement costs. My results have important policy implications for the selection of adaptation and mitigation projects by international adaptation funding organizations, such as the Green Climate Fund.
    Keywords: Climate change, adaptation versus mitigation, cross-country adaptation investments, non-cooperative climate policy, strategic complementarity
    JEL: C72 D62 H41 Q54 Q58
    Date: 2023–04
  14. By: Marie Obidzinski (CRED - Centre de Recherche en Economie et Droit - Université Paris-Panthéon-Assas); Yves Oytana (CRESE - Centre de REcherches sur les Stratégies Economiques (UR 3190) - UFC - Université de Franche-Comté - UBFC - Université Bourgogne Franche-Comté [COMUE])
    Abstract: We study the design of optimal liability rules when the use of a prediction by a human operator (she) may generate an external harm. This setting is common when using artificial intelligence (AI) to make a decision. An AI manufacturer (he) chooses the level of quality with which the algorithm is developed and the price at which it is distributed. The AI makes a prediction about the state of the world to the human operator who buys it, who can then decide to exert a judgment effort to learn the payoffs in each possible state of the world. We show that when the human operator overestimates the algorithm's accuracy (overestimation bias), imposing a strict liability rule on her is not optimal, because the AI manufacturer will exploit the bias by under-investing in the quality of the algorithm. Conversely, imposing a strict liability rule on the AI manufacturer may not be optimal either, since it has the adverse effect of preventing the human operator from exercising her judgment effort. We characterize the liability sharing rule that achieves the highest possible quality level of the algorithm, while ensuring that the human operator exercises a judgment effort. We then show that, when it can be used, a negligence rule generally achieves the first best optimum. To conclude, we discuss the pros and cons of each type of liability rule.
    Keywords: Liability rules, Decision-making, Artificial intelligence, Cognitive bias, Judgment, Prediction, Algorithm
    Date: 2022–11–22
  15. By: Jay Pil Choi (Michigan State University [East Lansing] - Michigan State University System); Doh-Shin Jeon (TSE-R - Toulouse School of Economics - UT Capitole - Université Toulouse Capitole - UT - Université de Toulouse - EHESS - École des hautes études en sciences sociales - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)
    Abstract: We investigate how platform market power affects platforms' design choices in ad-funded two-sided markets, where platforms may find it optimal to charge zero price on the consumer side and to extract surplus on the advertising side. We consider design choices affecting both sides in opposite ways and compare private incentives with social incentives. Platforms' design biases depend crucially on whether they can charge any price on the consumer side. We apply the framework to technology adoption, privacy, and ad load choices. Our results provide a rationale for a tougher competition policy to curb market power of ad-funded platforms with free services.
    Date: 2022–02–25
  16. By: Avi Lichtig; Ran Weksler
    Abstract: The severity of adverse selection depends, to a great extent, on the underlying distribution of the asset. This distribution is commonly modeled as exogenous; however, in many realworld applications, it is determined endogenously. A natural question in this context is whether one can predict the severity of the adverse selection problem in such environments. In this paper, we study a bilateral trade model in which the distribution of the asset is affected by pre-trade unobservable actions of the seller. Analyzing general trade mechanisms, we show that the seller’s actions are characterized by a riskseeking disposition. In addition, we show that (location-independent) riskier underlying distributions of the asset induce lower social welfare. That is, “lemon markets†arise endogenously in these environments.
    JEL: C72 D83 L15
    Date: 2023–03

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