nep-gth New Economics Papers
on Game Theory
Issue of 2023‒12‒04
seventeen papers chosen by
Sylvain Béal, Université de Franche-Comté

  1. Coarse correlated equilibria in linear quadratic mean field games and application to an emission abatement game By Luciano Campi; Federico Cannerozzi; Fanny Cartellier
  2. Some coordination problems are harder than others By Argyrios Deligkas; Eduard Eiben; Gregory Gutin; Philip R. Neary; Anders Yeo
  3. Relative Arbitrage Opportunities in an Extended Mean Field System By Nicole Tianjiao Yang; Tomoyuki Ichiba
  4. How Cognitive Skills Affect Strategic Behavior: Cognitive Ability, Fluid Intelligence and Judgment By Gill, David; Knepper, Zachary; Prowse, Victoria; Zhou, Junya
  5. Ultimatum game: regret or fairness? By Lida H. Aleksanyan; Armen E. Allahverdyan; Vardan G. Bardakhchyan
  6. Behavioral forces driving information unraveling By Benndorf, Volker; Kübler, Dorothea; Normann, Hans-Theo
  7. Institution Transfers, The Marshall Plan, Europe, and Ukraine: An Analytical Narrative By Atin Basuchoudhary; Andreas Freytag; Troy Siemers
  8. Radicalization of Islam or Peddling Radicalism? Lessons from the French Experience By Azam, Jean-Paul; Ferret, Jérôme
  9. How WEIRD are student samples? Lessons based on the trust game in Malawi By Holden, Stein T.; Tione, Sarah; Tilahun, Mesfin; Katengeza, Samson
  10. Oligopoly competition between satellite constellations will reduce economic welfare from orbit use By Julien Guyot; Akhil Rao; Sebastien Rouillon
  11. Persuasion and Matching: Optimal Productive Transport By Anton Kolotilin; Roberto Corrao; Alexander Wolitzky
  12. Partisan Traps By Ethan Bueno de Mesquita; Wioletta Dziuda
  13. When Fairness Matters: Cross-Race Responses to Intentionally Fair Treatment By Harvey, Matthew; Nickerson, David; Wozniak, Abigail
  14. Strategic Behavior between a Bank and A Microfinance Institution: The Role of Psychological Distance and Education Level By François Fall; Thanh Tam Nguyen-Huu
  15. Foreign Competition and Innovation By Elhanan Helpman
  16. Decomposing Trust By Dirk Engelmann; Jana Friedrichsen; Roel van Veldhuizen; Pauline Vorjohann; Joachim Winter
  17. Imperfect price information, market power, and tax pass-through By Montag, Felix; Mamrak, Robin; Sagimuldina, Alina; Schnitzer, Monika

  1. By: Luciano Campi; Federico Cannerozzi; Fanny Cartellier
    Abstract: Coarse correlated equilibria (CCE) are a good alternative to Nash equilibria (NE), as they arise more naturally as outcomes of learning algorithms and they may exhibit higher payoffs than NE. CCEs include a device which allows players' strategies to be correlated without any cooperation, only through information sent by a mediator. We develop a methodology to concretely compute mean field CCEs in a linear-quadratic mean field game framework. We compare their performance to mean field control solutions and mean field NE (usually named MFG solutions). Our approach is implemented in the mean field version of an emission abatement game between greenhouse gas emitters. In particular, we exhibit a simple and tractable class of mean field CCEs which allows to outperform very significantly the mean field NE payoff and abatement levels, bridging the gap between the mean field NE and the social optimum obtained by mean field control.
    Date: 2023–11
  2. By: Argyrios Deligkas; Eduard Eiben; Gregory Gutin; Philip R. Neary; Anders Yeo
    Abstract: In order to coordinate successfully individuals must first identify a target pattern of behaviour. In this paper we investigate the difficulty of identifying prominent outcomes in two kinds of binary action coordination problems in social networks: pure coordination games and anti-coordination games. For both environments, we determine the computational complexity of finding a strategy profile that (i) maximises welfare, (ii) maximises welfare subject to being an equilibrium, and (iii) maximises potential. We show that the complexity of these objectives can vary with the type of coordination problem. Objectives (i) and (iii) are tractable problems in pure coordination games, but for anti-coordination games are NP-hard. Objective (ii), finding the best Nash equilibrium, is NP-hard for both. Our results support the idea that environments in which actions are strategic complements facilitate successful coordination more readily than those in which actions are strategic substitutes.
    Date: 2023–11
  3. By: Nicole Tianjiao Yang; Tomoyuki Ichiba
    Abstract: This paper studies relative arbitrage opportunities in a market with infinitely many interacting investors. We establish a conditional McKean-Vlasov system to study the market dynamics coupled with investors. We then provide a theoretical framework to study a mean-field system, where the mean-field terms consist of a joint distribution of wealth and strategies. The optimal relative arbitrage is characterized by the equilibrium of extended mean field games. We show the conditions on the existence and the uniqueness of the mean field equilibrium, then prove the propagation of chaos results for the finite-player game, and demonstrate that the Nash equilibrium converges to the mean field equilibrium when the population grows to infinity.
    Date: 2023–11
  4. By: Gill, David (Department of Economics, Purdue University); Knepper, Zachary (Department of Economics, Purdue University); Prowse, Victoria (Department of Economics, Purdue University); Zhou, Junya (Department of Economics, Purdue University)
    Abstract: We explore the influence of cognitive ability and judgment on strategic behavior in the beauty contest game. Using the level-k model of bounded rationality, cognitive ability and judgment both predict higher level strategic thinking. However, individuals with better judgment choose the Nash equilibrium action less frequently, and we uncover a novel dynamic mechanism that sheds light on this pattern. Taken together, our results indicate that fluid (i.e., analytical) intelligence is a primary driver of strategic level-k thinking, while facets of judgment that are distinct from fluid intelligence drive the lower inclination of high judgment individuals to choose the equilibrium action.
    Keywords: cognitive ability; judgment; fluid intelligence; matrix reasoning; beauty contest; strategic sophistication; level-k; experiment; game theory JEL Classification: C92; C72; D91
    Date: 2023
  5. By: Lida H. Aleksanyan; Armen E. Allahverdyan; Vardan G. Bardakhchyan
    Abstract: In the ultimatum game, the challenge is to explain why responders reject non-zero offers thereby defying classical rationality. Fairness and related notions have been the main explanations so far. We explain this rejection behavior via the following principle: if the responder regrets less about losing the offer than the proposer regrets not offering the best option, the offer is rejected. This principle qualifies as a rational punishing behavior and it replaces the experimentally falsified classical rationality (the subgame perfect Nash equilibrium) that leads to accepting any non-zero offer. The principle is implemented via the transitive regret theory for probabilistic lotteries. The expected utility implementation is a limiting case of this. We show that several experimental results normally prescribed to fairness and intent-recognition can be given an alternative explanation via rational punishment; e.g. the comparison between "fair" and "superfair", the behavior under raising the stakes etc. Hence we also propose experiments that can distinguish these two scenarios (fairness versus regret-based punishment). They assume different utilities for the proposer and responder. We focus on the mini-ultimatum version of the game and also show how it can emerge from a more general setup of the game.
    Date: 2023–11
  6. 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, privacy
    JEL: C72 C90 C91
    Date: 2023
  7. By: Atin Basuchoudhary (Virginia Military Institute); Andreas Freytag (Friedrich Schiller University, Jena; and University of Stellenbosch, and CESifo Research Network, and STIAS); Troy Siemers (Virginia Military Institute)
    Abstract: This paper offers an analytical narrative based on an assurance game with two separate populations in an evolutionary setting. In our model, Donors and Recipients are two populations; let us call them Europe and Ukraine. The donor population has two types. A proportion of this population wants to promote a Marshall Plan-type model for the recipient state, and another prefers isolationism. A proportion of the population of the recipient state also intends to coordinate a Marshall Plan-type economic integration. In contrast, others prefer foreign aid but view further integration as a violation of sovereignty (or, with Ukraine, may be afraid of further Russian attacks from this integration). Marshall plan type coordination provides the highest payoffs through, e.g., the peace dividend, better institutions in Ukraine, widened European integration trade links, or global financial integration. Coordination is costly because it requires substantial institutional change on both sides. We use simulations to track outcomes given that European support for Ukraine and Ukrainian desire for aid may be endogenous. Further, we show how these endogenous outcomes respond to political shocks in Europe that affect European support for Ukraine and implicitly the lack of support for Ukraine.
    Keywords: Institutional Transfer, Institutional Coordination, Evolutionary Game Theory, Ukraine War, Foreign Aid
    JEL: P41 C73
    Date: 2023–11–10
  8. By: Azam, Jean-Paul; Ferret, Jérôme
    Abstract: A simple game-theoretic model is used to end the sterile intellectual trench war between those who analyze each instance of a community’s radicalization process as a self-contained phenomenon and those who prefer to embed such episodes within a more encompassing social framework. In the model, two groups labeled “Muslims” and “Nativists” are competing using radicalization as a tool to enlarge their share of the limelight in the media. Exogenous shocks are then shown to entail both idiosyncratic responses and interactions between the two groups. The French “radicalized decade” 2011-2020, which witnessed both the highly lethal November 13, 2015, Jihadist attacks at the Bataclan theater, several cafés outside terrasses, and at the Stade de France, and the populist gilets jaunes massive uprising from 2018 to the COVID-related lockdown in 2020, among other radicalization events, is used to put some of the model’s insight to work. A simple extension of the model sheds some light on the emerging Islamo-Leftist and Lefto-Populist tacit collusions, suggesting that the radical left’ splintering probably did boost the collective radicalization process.
    Date: 2023–11–16
  9. By: Holden, Stein T. (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tione, Sarah (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Tilahun, Mesfin (Centre for Land Tenure Studies, Norwegian University of Life Sciences); Katengeza, Samson (Centre for Land Tenure Studies, Norwegian University of Life Sciences)
    Abstract: We have used the standard trust game on a random sample of university students (N=764) and a random sample of rural residents (N=834) in Malawi. The study identifies social preference types (Bauer, Chytilov´a, & Pertold-Gebicka, 2014; Fehr, Gl¨atzle-R¨utzler, & Sutter, 2013) and how these relate to variations in trust and trustworthiness based on the standard trust game (Berg, Dickhaut, & McCabe, 1995). The games are framed as within-class and within-university for students and as within-village and within-district for the rural sample. Many previous studies have found students to represent a lower bound in experimental studies of pro-social, trust, and trustworthiness behavior compared to broader population samples. Contrary to this, we found that trust and trustworthiness were significantly higher among university students than among villagers in rural communities in Malawi. We decomposed the trust and trustworthiness to investigate the relative importance of alternative explanations for their variation and to explain the unexpected gap in trust and trustworthiness between the student and rural samples. We were able to explain most of the gap for trustworthiness and about half of the gap for trust. Factors contributing significantly to the variation in trustworthiness were social preference type, reciprocity norm, age, and gender. Trust and trustworthiness varied systematically across social preference types. Altruistic and egalitarian types were more common among the students than in the rural population, and the students also demonstrated stronger moral obligations to reciprocate in the game. On average, students and rural respondents were too optimistic about the expected returns in the trust game; students were more optimistic than rural subjects on average, and expectations influenced trust investments. Risk tolerance also enhanced trust investments; students were slightly more risk tolerant than rural subjects. Women were found to be less trusting and less trustworthy than men, and there was a larger share of women in the rural sample. There were only modest gains in trust and trustworthiness in the within-class vs. within-university and the within-village vs. within-district frames.
    Keywords: Social preferences; Trust; Trustworthiness; university students; rural subjects; Malawi
    JEL: C72 C92 C93 D01 D90
    Date: 2023–11–11
  10. By: Julien Guyot (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique); Akhil Rao; Sebastien Rouillon (BSE - Bordeaux Sciences Economiques - UB - Université de Bordeaux - CNRS - Centre National de la Recherche Scientifique)
    Abstract: Orbital space enables many essential services, such as weather forecasting, global communication, navigation, Earth observation for environmental and agricultural management, and national security applications. Orbit use is increasingly defined by firms launching coordinated fleets—"constellations"—of satellites into low-Earth orbit. These firms operate in markets with few or no competitors, such as the market for broadband internet provision to rural areas. How will oligopolistic competition shape the allocation of orbital space? We analyze orbital-use patterns and economic welfare when two profit-maximizing firms operate satellite constellations with sophisticated collision avoidance systems. We compare this duopoly equilibrium to public utility constellations designed and regulated to maximize economic welfare from orbit use. We show that imperfect competition reduces economic welfare from orbit use by up to 12%—$1.1 billion USD—per year and distorts the allocation of orbital space. The nature of the distortion depends on the magnitude of constellation-related environmental damages. When damages are low, economic welfare is maximized by larger-than-equilibrium constellations. When damages are high, economic welfare is maximized by smaller-than-equilibrium constellations. Between the growing commercial and national interests in outer space and the importance of low-Earth orbit to space exploration, orbit-use management is likely to be a fruitful and policy-relevant area for economic research. We conclude with a discussion of future research directions in orbit-use management relevant to policymakers around the world.
    Keywords: Space economics, Satellites, Oligopoly, Common-pool resources, Game theory
    Date: 2023–10–16
  11. By: Anton Kolotilin; Roberto Corrao; Alexander Wolitzky
    Abstract: We consider general Bayesian persuasion problems where the receiver's utility is single-peaked in a one-dimensional action. We show that a signal that pools at most two states in each realization is always optimal, and that such pairwise signals are the only solutions under a non-singularity condition (the twist condition). Our core results provide conditions under which riskier prospects induce higher or lower actions, so that the induced action is single-dipped or single-peaked on each set of nested prospects. We also provide conditions for the optimality of either full disclosure or negative assortative disclosure, where all prospects are nested. Methodologically, our results rely on novel duality and complementary slackness theorems. Our analysis extends to a general problem of assigning one-dimensional inputs to productive units, which we call optimal productive transport. This problem covers additional applications including club economies (assigning workers to firms, or students to schools), robust option pricing (assigning future asset prices to price distributions), and partisan gerrymandering (assigning voters to districts).
    Date: 2023–11
  12. By: Ethan Bueno de Mesquita; Wioletta Dziuda
    Abstract: Electoral incentives may lead policymakers to eschew opportunities for common-interest reform, focusing instead on zero-sum, partisan policymaking. By forgoing opportunities for common-interest reforms, incumbents may convince their constituents that such reforms are rarely feasible, so that policymaking is primarily about zero-sum, partisan conflict. Voters with such beliefs vote based on ideological alignment, rather than factors such as quality or honesty. This is electorally beneficial for incumbents, who are typically ideologically aligned with their constituents. We capture this logic in an infinite horizon model and characterize the resulting dynamics of politics and policymaking. Equilibrium exhibits partisan traps---voters are pessimistic about common-interest opportunities, politicians behave in a purely partisan manner that shuts down voter learning, and ideologically aligned incumbents are consistently reelected. Partisan traps often occur in equilibrium even when common-interest reforms are in fact frequently feasible. The model shows how elite and mass polarization are intertwined, with politicians engaging in strategically polarized and polarizing behavior which leads to pessimistic beliefs among voters, who come to perceive there to be little political common ground.
    JEL: D0 P0
    Date: 2023–11
  13. By: Harvey, Matthew (University of Washington Tacoma); Nickerson, David (Temple University); Wozniak, Abigail (Federal Reserve Bank of Minneapolis)
    Abstract: Do White and Black Americans differ in their response to fair versus unfair treatment, and do these reactions depend on whether treatment is intentional? We study an ultimatum game in which we non-deceptively vary three dimensions: racial identities of participants, offer inequality, and whether the offer was made intentionally or assigned by lottery. Unequal offers are more likely to be rejected in all conditions, but participants differed in how intentionality behind an offer affected their response. White respondents did not differentiate between intentional and randomly assigned offer inequality. In contrast, among Black respondents, intentionality increased acceptance of fair offers.
    Keywords: race identities, fairness, ultimatum game, inequality aversion, intentionality
    JEL: D63 J71 C90
    Date: 2023–11
  14. By: François Fall; Thanh Tam Nguyen-Huu (Métis Lab EM Normandie - EM Normandie - École de Management de Normandie)
    Abstract: In Hotelling's fundamental model (1929), the geographical distance and high transportation costs grant firms present in a market a certain power over local buyers in their neighborhoods. Starting from his model, this study shows that in the competition between a bank and a microfinance institution (MFI), geographical distance and transportation costs alone are no longer sufficient for attributing market power to the firms present. In fact, the introduction of psychological distanceand education level in the model alter the Hotelling's results. Psychological proximity (trust) and the educational level of the client play determinant roles in dividing the credit market between a bank and an MFI.
    Keywords: C72, D43, spatial competition bank microfinance market power G21 O17 C72 D43, spatial competition, bank, microfinance, market power G21, O17
    Date: 2022–09
  15. By: Elhanan Helpman
    Abstract: Empirical studies have found that enhanced foreign competition can encourage or discourage innovation. To address this relationship, I examine a market structure in which a small number of large multi-product oligopolists compete with a large number of small single-product firms in the same industry. The single-product firms are short-lived while the multi-product firms live forever, and the large firms invest in innovation in order to enlarge their product spans. All firms export. I show that an increase in the competitiveness of foreign firms can increase or reduce innovation efforts of a large multi-product firm. Moreover, changes in the incentives to innovate can be different for more-productive and less-productive oligopolists. As a result, aggregate sectoral innovation may rise or decline, depending on the productivity distribution of the oligopolists. I also show that changes in short-term operating profits may not be aligned with changes in the incentives to invest in innovation.
    JEL: D43 F1 L1
    Date: 2023–11
  16. By: Dirk Engelmann (HU Berlin); Jana Friedrichsen (Christian-Albrechts-Universität Kiel); Roel van Veldhuizen (Lund University); Pauline Vorjohann (University of Exeter); Joachim Winter (LMU Munich)
    Abstract: Trust is an important condition for economic growth and other economic outcomes. Previous studies suggest that the decision to trust is driven by a combination of risk attitudes, distributional preferences, betrayal aversion, and beliefs about the probability of being reciprocated. We compare the results of a binary trust game to the results of a series of control treatments that by design remove the effect of one or more of these components of trust. This allows us to decompose variation in trust behavior into its underlying factors. Our results imply that beliefs are a key driver of trust, and that the additional components only play a role when beliefs about reciprocity are sufficiently optimistic. Our decomposition approach can be applied to other settings where multiple factors that are not mutually independent affect behavior. We discuss its advantages over the more traditional approach of controlling for measures of relevant factors derived from separate tasks in regressions, in particular with respect to measurement error and omitted variable bias.
    Keywords: trust; omitted-variable bias; measurement error;
    JEL: C90 D90
    Date: 2023–11–16
  17. By: Montag, Felix; Mamrak, Robin; Sagimuldina, Alina; Schnitzer, Monika
    Abstract: Pass-through determines how consumers respond to taxes. We investigate the impact of imperfect price information on pass-through of commodity taxes. Our theoretical model predicts that the pass-through rate increases with the share of well-informed consumers. Pass-through is higher for the minimum price, paid by well-informed consumers, than for the average price, paid by uninformed consumers. Moreover, passthrough to the average price is non-monotonic with respect to the number of sellers. An empirical analysis of multiple recent tax changes in the German and French retail fuel markets confirms our theoretical predictions. Our results have implications for tax policy and shed light on the relative effectiveness of Pigouvian taxes versus regulation.
    Keywords: pass-through, taxes, imperfect information, competition
    Date: 2023

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