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on Game Theory |
| By: | Bailey, Ralph W. (Department of Economics, University of Birmingham); Kozlovskaya, Maria (Economics, Finance and Entrepreneurship Department, Aston Business School); Ray, Indrajit (Cardiff Business School) |
| Abstract: | We analyse the conditions for a strategy profile to be an equilibrium in a specific buy and sell strategic market game, with two goods, using best responses of a player against random bids from the opponents. The difficulty in characterising mixed Nash equilbria is that the expected utility is not quasiconcave in strategies. We still prove that any mixed strategy Nash equilibrium profile in which every player faces only two random bids is trivial, that is, is a convex combination of some pure strategy Nash equilibria; moreover, we show that the outcome (the price and the allocations) is deterministic in such an equilibrium. |
| Keywords: | Mixed bids ; Mixed strategy Nash equilibrium ; strategic market games JEL codes: C72 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wcreta:82&r=gth |
| By: | James W. Bono; David H. Wolpert |
| Abstract: | It is known that a player in a noncooperative game can benefit by publicly restricting his possible moves before play begins. We show that, more generally, a player may benefit by publicly committing to pay an external party an amount that is contingent on the game's outcome. We explore what happens when external parties -- who we call ``game miners'' -- discover this fact and seek to profit from it by entering an outcome-contingent contract with the players. We analyze various structured bargaining games between miners and players for determining such an outcome-contingent contract. These bargaining games include playing the players against one another, as well as allowing the players to pay the miner(s) for exclusivity and first-mover advantage. We establish restrictions on the strategic settings in which a game miner can profit and bounds on the game miner's profit. We also find that game miners can lead to both efficient and inefficient equilibria. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.02353&r=gth |
| By: | Philippe Bergault; Leandro S\'anchez-Betancourt |
| Abstract: | We find closed-form solutions to the stochastic game between a broker and a mean-field of informed traders. In the finite player game, the informed traders observe a common signal and a private signal. The broker, on the other hand, observes the trading speed of each of his clients and provides liquidity to the informed traders. Each player in the game optimises wealth adjusted by inventory penalties. In the mean field version of the game, using a G\^ateaux derivative approach, we characterise the solution to the game with a system of forward-backward stochastic differential equations that we solve explicitly. We find that the optimal trading strategy of the broker is linear on his own inventory, on the average inventory among informed traders, and on the common signal or the average trading speed of the informed traders. The Nash equilibrium we find helps informed traders decide how to use private information, and helps brokers decide how much of the order flow they should externalise or internalise when facing a large number of clients. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.05257&r=gth |
| By: | Deborah Kistler; Su Nanxu; Christian Thoeni |
| Abstract: | We study the effect of three salience manipulations on cooperation in a standard public goods game. A standard social preferences model enriched by salience weights provides hypotheses about the expected effects of our salience manipulations. We test these predictions in a laboratory experiment using different techniques to manipulate the salience of either the highest or lowest contribution in the group. We find no systematic effect of the salience manipulation on cooperation, even though our regression analysis suggests that subjects’contributions are positively linked to the salient contribution. This is because subjects systematically reduce their contributions in the maximum condition relative the minimum condition. These two effects offset each other, resulting in contribution levels which are surprisingly unresponsive to our salience manipulations. |
| Keywords: | salience, inequality aversion, experiment, public goods game |
| JEL: | D83 D91 C91 C72 H41 |
| Date: | 2022–06 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:22.10&r=gth |
| By: | Itai Arieli; Ivan Geffner; Moshe Tennenholtz |
| Abstract: | This paper considers the dynamics of cheap talk interactions between a sender and receiver, departing from conventional models by focusing on the receiver's perspective. We study two models, one with transparent motives and another one in which the receiver can \emph{filter} the information that is accessible by the sender. We give a geometric characterization of the best receiver equilibrium under transparent motives and prove that the receiver does not benefit from filtering information in this case. However, in general, we show that the receiver can strictly benefit from filtering and provide efficient algorithms for computing optimal equilibria. This innovative analysis aligns with user-based platforms where receivers (users) control information accessible to senders (sellers). Our findings provide insights into communication dynamics, leveling the sender's inherent advantage, and offering strategic interaction predictions. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.03671&r=gth |
| By: | Nobuyuki Hanaki; Yuta Takahashi |
| Abstract: | We present and conduct a novel experiment on a multi-period beauty contest game motivated by the canonical New-Keynesian model. Participants continuously provide forecasts for prices spanning multiple future periods. These forecasts determine the price for the current period and participants’ payoffs. Our findings are threefold. First, the observed prices in the experiment deviate more from the rational expectations equilibrium prices under strategic complementarity than under strategic substitution. Second, participants’ expectations respond to announcements of future shocks on average. Finally, participants employ heuristics in their forecasting; however, the choice of heuristic varies with the degree of strategic complementarity. |
| Date: | 2023–09 |
| URL: | http://d.repec.org/n?u=RePEc:dpr:wpaper:1213r&r=gth |
| By: | King King Li (SAFTI - Shenzhen Audencia Financial Technology Institute); Kang Rong (Shanghai University of Finance and Economics) |
| Abstract: | We propose a two-step guessing game to measure the depth of thinking. We apply this method to the P beauty contest game. Using our method, we find that 81% of subjects do not make choice following best response reasoning while the classical method would suggest only 12%. The result suggests that the classical method has the fundamental problem that it cannot distinguish if a submitted number is due to best response reasoning or not. It also suggests that traditional level k analysis falsely attributes some sophistication to random players, and that the degree of false attribution is large. Our procedure provides an alternative way to identify whether the individual has best response reasoning which is essential for any positive level of depth of thinking and differentiates between the depth of thinking and random choice, and hence provides a very different conclusion, which is suggestive of limitations of the classical method. |
| Keywords: | P Beauty Contest, Best Response Reasoning, Experiment |
| Date: | 2023–12–28 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04376266&r=gth |
| By: | Mekvabishvili, Rati |
| Abstract: | Many modern societies sustain large-scale cooperation among strangers and maintain the provision of public goods through well-functioning top-down formal institutions. However, it is important to understand the differences between weak and strong formal institutions in achieving two key goals in social dilemma situations: sustaining socially beneficial equilibria and fostering individual prosocial behavior. Additionally, we need to examine what happens to cooperation when the credibility of a formal institution is undermined and what occurs when it ceases to function. In this novel experiment of a repeated public goods game, we explore the effects of an exogenous centralized punishment mechanism with a low probability, which serves as a weak formal institution, and compare it with a strong formal institution. Our findings are encouraging, as they demonstrate that even under a weak formal institution, relatively high levels of cooperation can be sustained. However, irrespective of whether the punishment probability for free riders is low or high, once the punishment mechanism is removed, cooperation breaks down to a similarly low level. This suggests that regardless of the strength of the formal institution, there is an alike effect of crowding out an individual’s intrinsic motivation for cooperation. Therefore, the application of a centralized punishment mechanism as a policy tool to promote cooperation, regardless of its strength, appears to be a double-edged sword: socially beneficial outcome and intrinsically motivated cooperation hardly can be attained simultaneously |
| Keywords: | formal institutions, public good, centralized punishment, crowding out, cooperation |
| JEL: | C90 D02 H41 |
| Date: | 2023–12–20 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:119659&r=gth |
| By: | David Lowing (Laboratoire de Génie Industriel, CentraleSupélec, Université Paris-Saclay, France); Léa Munich (Université de Franche-Comté, CRESE, UR3190, F-25000 Besançon, France and Université de Lorraine, BETA, F-54000 Nancy, France); Kevin Techer (UJM Saint-Etienne, GATE, UMR3824, F-42000 Saint-Etienne, France) |
| Abstract: | Accurate cost allocation is a challenge for both public service operators and regulatory bodies, given the dual objectives of ensuring essential public service provision and maintaining fair com- petition. Operators have the obligation to provide essential public services for all individuals, which may incur additional costs. To compensate this, the operators receive state aids, which are determined by an assessment of the net cost associated with these obligations. However, these aids introduce the risk of distorting competition, as operators may employ them to subsidize competitive activities. To avoid this risk, a precise cost allocation method that adequately assess the net cost of these obligations becomes necessary. Such a method must satisfy specific prop- erties that effectively prevent cross-subsidization. In this paper, we propose a method grounded in cooperative game theory that offers a solution for allocating common costs between activities and obligations in public service provision. We adopt a normative approach by introducing a set of desirable axioms that prevent cross-subsidization. We provide two characterizations of our proposed solution on the basis of these axioms. Furthermore, we present an illustration of our method to the allocation of common costs for a public service operator. |
| Keywords: | Cooperative game theory; Cost allocation; Public service; Cross-subsidization |
| JEL: | C71 L51 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:crb:wpaper:2024-05&r=gth |
| By: | Gurkirat Wadhwa; Tushar Shankar Walunj; Veeraruna Kavitha |
| Abstract: | Competition and cooperation are inherent features of any multi-echelon supply chain. The interactions among the agents across the same echelon and that across various echelons influence the percolation of market demand across echelons. The agents may want to collaborate with others in pursuit of attracting higher demand and thereby improving their own revenue. We consider one supplier (at a higher echelon) and two manufacturers (at a lower echelon and facing the customers) and study the collaborations that are `stable'; the main differentiator from the existing studies in supply chain literature is the consideration of the following crucial aspect -- the revenue of any collaborative unit also depends upon the way the opponents collaborate. Such competitive scenarios can be modeled using what is known as partition form games. Our study reveals that the grand coalition is not stable when the product is essential and the customers buy it from any of the manufacturers without a preference. The supplier prefers to collaborate with only one manufacturer, the one stronger in terms of market power; further, such collaboration is stable only when the stronger manufacturer is significantly stronger. Interestingly, no stable collaborative arrangements exist when the two manufacturers are nearly equal in market power. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.04939&r=gth |
| By: | Yaron Azrieli |
| Abstract: | Consider a large population of agents who repeatedly compete for awards, as in the case of researchers who can annually apply for grants from a science foundation. A key objective for the principal is to efficiently allocate resources to the highest quality applications, but the review process is often inherently noisy. Imperfect selection of winners may encourage low quality applications, which in turn forces the designer to commit more resources to the reviewing process and can further increase the misallocation. We study \emph{temporary exclusion} as a potential solution to these problems. With exclusion, an agent is ineligible to apply in the current period if they were rejected (or if they applied) in the previous period. Such policy introduces intertemporal incentives to the participation decision and encourages self-selection. We characterize the steady-state equilibria of this dynamic game and compare the outcomes to the benchmark case without exclusion. In particular, we show that whenever the benefit from winning is large, exclusion leads to fewer low quality applications and higher welfare for agents. |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2401.06257&r=gth |
| By: | Paolo Pellizzari (Department of Economics, Ca’ Foscari University of Venice) |
| Abstract: | Can traders in a financial market learn whether to be informed and which information to use in their demand for risky assets? We describe in this paper an agent-based model where heterogeneous traders seek short-term profits and differ in their choices to use or discard some signals. In the model, a vector of fresh news/signals is available at every period and some (but not all) the signals affect the stochastic payoff of the stock. Under an evolutionary dynamics favouring higher myopic returns we find that, in equilibrium, traders mostly end up in either discarding all signals or being (perfectly) informed using all the relevant signals (paying the related costs). Moreover, the rate of use of information strongly depends on the "complexity" of the market: an excessively large abundance of signals to be screened or a high volatility of the market, result in large shares of passive agents who overestimate the market's risk; conversely, low market complexity is associated with a more intense use of information and aggressiveness of informed traders. Evolutionary models and Agent-based models and Information in financial markets |
| Keywords: | financial markets w information, agent-based models, evolutionary game theory, equity premium puzzle |
| JEL: | G17 D83 D91 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:ven:wpaper:2024:03&r=gth |