nep-gth New Economics Papers
on Game Theory
Issue of 2024‒03‒11
seventeen papers chosen by
Sylvain Béal, Université de Franche-Comté

  1. A Mean Field Game Approach to Relative Investment-Consumption Games with Habit Formation By Zongxia Liang; Keyu Zhang
  2. Random partitions, potential of the Shapley value, and games with externalities By Andr\'e Casajus; Yukihiko Funaki; Frank Huettner
  3. An Explicit Solution to Harvesting Behaviors in a Predator-Prey System By Guillaume Bataille
  4. Sequential Contest when the Precision of Observation is Endogenous By Yohan Pelosse
  5. My Poor(er) Friend: (Non-)Economic Integration in Public Good Games By Pietro Battiston; Simona Gamba; Sharon G. Harrison
  6. Robust Price Discrimination By Itai Arieli; Yakov Babichenko; Omer Madmon; Moshe Tennenholtz
  7. Interpersonal trust: Asymptotic analysis of a stochastic coordination game with multi-agent learning By Benedikt V. Meylahn; Arnoud V. den Boer; Michel Mandjes
  8. Exclusive Portfolio Dealing and Market Inefficiency By Natalie Kessler; Iman van Lelyveld; Ellen van der Woerd
  9. Pre-election communication in public good games with endogenous leaders By Lisa Bruttel; Gerald Eisenkopf; Juri Nithammer
  10. Political Competition and Strategic Voting in Multi-Candidate Elections By Bernhardt, Dan; Stefan Krasa, Stefan; Squintani, Francesco
  11. Women's Empowerment and Intra-Household Bargaining Power By Nacka, Marina; Drichoutis, Andreas C.; Nayga, Rodolfo
  12. Stabilizing the Financial Markets through Communication and Informed Trading By Guo, Qi; Huang, Shao'an; Wang, Gaowang
  13. Negotiation for Transfer Prices under the Arm's Length Principle By OKOSHI Hirofumi
  14. Toward an Understanding of Insincere Bidding in a Vickrey Auction Experiment By Shigehiro Serizawa; Natsumi Shimada; Tiffany Tsz Kwan Tse
  15. Pyramid Schemes By Gönül Doğan; Kenan Kalayci; Priscilla Man
  16. Keep Your Friends Close and Your Enemies Closer: Network externality and tax competition By OKOSHI Hirofumi; MUKUNOKI Hiroshi
  17. The Anatomy of Out-of-Sample Forecasting Accuracy By Daniel Borup; Philippe Goulet Coulombe; Erik Christian Montes Schütte; David E. Rapach; Sander Schwenk-Nebbe

  1. By: Zongxia Liang; Keyu Zhang
    Abstract: This paper studies an optimal investment-consumption problem for competitive agents with exponential or power utilities and a common finite time horizon. Each agent regards the average of habit formation and wealth from all peers as benchmarks to evaluate the performance of her decision. We formulate the n-agent game problems and the corresponding mean field game problems under the two utilities. One mean field equilibrium is derived in a closed form in each problem. In each problem with n agents, an approximate Nash equilibrium is then constructed using the obtained mean field equilibrium when n is sufficiently large. The explicit convergence order in each problem can also be obtained. In addition, we provide some numerical illustrations of our results.
    Date: 2024–01
  2. By: Andr\'e Casajus; Yukihiko Funaki; Frank Huettner
    Abstract: The Shapley value equals a player's contribution to the potential of a game. The potential is a most natural one-number summary of a game, which can be computed as the expected accumulated worth of a random partition of the players. This computation integrates the coalition formation of all players and readily extends to games with externalities. We investigate those potential functions for games with externalities that can be computed this way. It turns out that the potential that corresponds to the MPW solution introduced by Macho-Stadler et al. (2007, J. Econ. Theory 135, 339-356), is unique in the following sense. It is obtained as a the expected accumulated worth of a random partition, it generalizes the potential for games without externalities, and it induces a solution that satisfies the null player property even in the presence of externalities.
    Date: 2024–02
  3. By: Guillaume Bataille (Aix-Marseille Univ., CNRS, AMSE, Marseille, France)
    Abstract: This paper derives closed-form solutions for a strategic, simultaneous harvesting in a predator-prey system. Using a parametric constraint, it establishes the existence and uniqueness of a linear feedback-Nash equilibrium involving two specialized fleets and allow for continuous time results for a class of payoffs that have constant elasticity of the marginal utility. Theses results contribute to the scarce literature on analytically tractable predator-prey models with endogenous harvesting. A discussion based on industry size effects is provided to highlight the role played by biological versus strategic interactions in the multi-species context.
    Keywords: fisheries, Dynamic games, common-pool resource, Predator-prey relationship
    JEL: Q22 Q57 C61 C73
    Date: 2024–02
  4. By: Yohan Pelosse (Humanities and Social Sciences, Swansea University)
    Abstract: This paper explores a sequential contest where the second-mover can, at some cost, invests in a more or less precise signal on the leader’s action before making his own move. We show that this signaling structure a la Weibull et al. (2007) guarantees the existence of a mixed-strategy perfect Bayesian equilibrium that fully preserves the value of commitment. We also prove that the profits of the first-mover in this type of equilibrium are always higher than in the subgame perfect equilibriumof the standard sequential contest.
    Date: 2024–02–21
  5. By: Pietro Battiston; Simona Gamba; Sharon G. Harrison
    Abstract: We run an experiment where subjects play a standard repeated two player public good game looking at the effect of being matched to a subject with different endowment - and keeping fixed the overall distribution of endowments. Differently from the existing literature, all subjects are aware of the existing heterogeneity in endowments, regardless of whether they are assigned to a homogeneous or heterogeneous group. Moreover, since in modern societies financial heterogeneity typically correlates with many other forms of heterogeneity, including habits, tastes and membership in given social groups, we look at how financial heterogeneity interacts with in-group vs. out-group feeling, using randomly formed groups. While neither economic integration nor group membership alone significantly affect overall contributions, and hence welfare, the two strongly interact: being matched to a partner with a different endowment and from the other group results in particularly low contributions. Similarly, being matched to a partner who is from the other group and has low endowment results in particularly low contributions.
    Keywords: public good game, economic segregation, in-group effect, laboratory experiment
    JEL: C90 H41 C92 D31
    Date: 2024–02–01
  6. By: Itai Arieli; Yakov Babichenko; Omer Madmon; Moshe Tennenholtz
    Abstract: We consider a model of third-degree price discrimination, in which the seller has a valuation for the product which is unknown to the market designer, who aims to maximize the buyers' surplus by revealing information regarding the buyer's valuation to the seller. Our main result shows that the regret is bounded by $U^*(0)/e$, where $U^*(0)$ is the optimal buyer surplus in the case where the seller has zero valuation for the product. This bound is attained by randomly drawing a seller valuation and applying the segmentation of Bergemann et al. (2015) with respect to the drawn valuation. We show that the $U^*(0)/e$ bound is tight in the case of binary buyer valuation.
    Date: 2024–01
  7. By: Benedikt V. Meylahn; Arnoud V. den Boer; Michel Mandjes
    Abstract: We study the interpersonal trust of a population of agents, asking whether chance may decide if a population ends up in a high trust or low trust state. We model this by a discrete time, random matching stochastic coordination game. Agents are endowed with an exponential smoothing learning rule about the behaviour of their neighbours. We find that, with probability one in the long run the whole population either always cooperates or always defects. By simulation we study the impact of the distributions of the payoffs in the game and of the exponential smoothing learning (memory of the agents). We find, that as the agent memory increases or as the size of the population increases, the actual dynamics start to resemble the expectation of the process. We conclude that it is indeed possible that different populations may converge upon high or low trust between its citizens simply by chance, though the game parameters (context of the society) may be quite telling.
    Date: 2024–02
  8. By: Natalie Kessler; Iman van Lelyveld; Ellen van der Woerd
    Abstract: We rationalize exclusive portfolio dealing in a novel three-period partial equilibrium framework populated by a representative, risk-neutral seller and a small number of ex ante identical broker-dealers. Endowed with independent, uncertain demand for a representative asset, the broker-dealers may compete in prices for exclusivity. If no exclusivity is granted, due to either the lack or seller rejection of offers, the seller enters a second-price auction with a zero-loss reserve price. While seller profits are constant under exclusivity (Bertrand Paradox), auction profits increase in the number of broker-dealers. Therefore, exclusivity arises in equilibrium only for a seller with at most two broker-dealers, reducing the trade frequency by one-third. The results are robust to endogenizing the number of broker-dealers and to allowing for the ex post asymmetry in asset demand. Exclusivity, however, does not arise when the auction features a seller-optimal reserve price. We motivate and conclude with an application to the security lending market.
    Keywords: Exclusive Dealing; Intermediated Markets; Competition; Market Efficiency
    JEL: G14 G24 D43 D86
    Date: 2024–02
  9. By: Lisa Bruttel (University of Potsdam, CEPA); Gerald Eisenkopf (University of Vechta); Juri Nithammer (University of Potsdam)
    Abstract: Leadership plays an important role for the efficient and fair solution of social dilemmas but the effectiveness of a leader can vary substantially. Two main factors of leadership impact are the ability to induce high contributions by all group members and the (expected) fair use of power. Participants in our experiment decide about contributions to a public good. After all contributions are made, the leader can choose how much of the joint earnings to assign to herself; the remainder is distributed equally among the followers. Using machine learning techniques, we study whether the content of initial open statements by the group members predicts their behavior as a leader and whether groups are able to identify such clues and endogenously appoint a “good” leader to solve the dilemma. We find that leaders who promise fairness are more likely to behave fairly, and that followers appoint as leaders those who write more explicitly about fairness and efficiency. However, in their contribution decision, followers focus on the leader’s first-move contribution and place less importance on the content of the leader’s statements.
    Keywords: Leadership, Public good, Voting, Promises, Experiment
    JEL: C92 D23 D72 D83
    Date: 2024–02
  10. By: Bernhardt, Dan (Department of Economics, University of Illinois and Department of Economics, University of Warwick); Stefan Krasa, Stefan (Department of Economics, University of Illinois); Squintani, Francesco (Department of Economics, University of Warwick)
    Abstract: We develop a model of strategic voting in a spatial setting with multiple candidates when voters have both expressive and instrumental concerns. The model endogenizes the strategic coordination of voters, yet is flexible enough to allow the analysis of political platform competition by policy-motivated candidates. We characterize all strategic voting equilibria in a three-candidate setting. Highlighting the utility of our approach, we analyze a setting with two mainstream and a spoiler candidate, showing that the spoiler can gain from entering, even though she has no chance of winning the election and reduces the winning probability of her preferred mainstream candidate
    Date: 2024
  11. By: Nacka, Marina; Drichoutis, Andreas C.; Nayga, Rodolfo
    Abstract: We assess the effectiveness of the Abbreviated Women's Empowerment in Agriculture Index (A-WEAI) in predicting intra-household bargaining power. We conducted a lab-in-the-field experiment with 464 agricultural households, where spouses made decisions about money allocations. The experiment tested whether they would choose efficient overall household gains or favor individual monetary benefits. Our findings demonstrate that women's empowerment levels, as measured by the A-WEAI, are predictive of decisions in the allocation task. This supports the A-WEAI's utility in representing and predicting intra-household dynamics.
    Keywords: A-WEAI; allocation task; dictator game; agricultural households
    JEL: C72 C93 D13
    Date: 2024–02–08
  12. By: Guo, Qi; Huang, Shao'an; Wang, Gaowang
    Abstract: We develop a model of government intervention with information disclosure in which a government with two private signals trades directly in financial markets to stabilize asset prices. Government intervention through informed trading stabilizes financial markets and affects market quality (market liquidity and price efficiency) through a noise channel and an information channel. Information disclosure negatively affects financial stability by deteriorating the information advantages of the government, while its final effects on market quality hinge on the relative sizes of the noise effect and the information effect. Under different information disclosure scenarios, there exist potential tradeoffs between financial stability and price efficiency.
    Keywords: government intervention; information disclosure; financial stability; price efficiency; market liquidity
    JEL: D8 G1
    Date: 2024–02–08
  13. By: OKOSHI Hirofumi
    Abstract: Determining whether MNEs are engaged in tax avoidance by analyzing their transfer pricing practices is difficult due to the presence of firm-specific products or technologies; additionally, disputes about MNE transfer pricing activities sometimes arise. Because resolving such disputes formally is time consuming, an MNE and a tax authority may agree on a transfer price level in an informal negotiation. This study investigates how MNE transfer price is determined in informal negotiations processes by interlinking MNE investment in product quality and negotiation power, and how a longer period for resolving a dispute in a formal process affects the equilibrium transfer price. We find that a longer time for a formal process induces firm investment, but its effect on the equilibrium transfer price depends on each MNE's negotiation power against its tax authority. In addition, our analysis shows that tax revenues in a high-tax country may increase due to MNE tax avoidance activity, because increases in firms' investments boost their operating profits. Furthermore, a fixed subsidy for investments in quality may be more likely to reduce welfare during a prolonged dispute resolution when a high-tax country places extra weight on tax revenue.
    Date: 2024–02
  14. By: Shigehiro Serizawa; Natsumi Shimada; Tiffany Tsz Kwan Tse
    Abstract: This study explores two key factors influencing subjects’ deviation from sincere bidding in Vickrey auction experiments. The first factor examines subjects’ understanding of strategy-proofness (SP), while the second focuses on “human interaction” which includes social preferences (spite and altruism), responses to strategic uncertainty, and tacit collusion. To analyze the effect of understanding SP, we quiz subjects before an experimental Vickrey auction and examine whether their bidding behavior changes if one of the quizzes includes hints about SP. We design the quiz carefully, incorporating implicit hints about SP and ensuring the avoidance of explicit demands or advice to mitigate experimenter demand effects. However, completing the quiz enables the subjects to understand SP themselves. To analyze the effects of human interaction, we examine whether subjects’ bidding behavior changes if they compete against robots instead of human rivals in the auctions. We design 2×2 treatments by varying the type of quiz (with or without hints about SP) and the nature of the rivals (humans or robots). We found that the quiz with hints about SP increases sincere bidding. The nature of rivals also influences the bidding behavior; nonetheless, its impact is not as robust as that of SP hints. Thus, the main factor causing insincere bidding in Vickrey auction experiments is not human interaction but a lack of understanding of SP.
    Date: 2024–02
  15. By: Gönül Doğan (Faculty of Management, Economics and Social Sciences, Chair of Corporate Development and Business Ethics, University of Cologne); Kenan Kalayci (School of Economics, University of Queensland); Priscilla Man (School of Economics, University of Queensland)
    Abstract: We invite experiment participants to invest their endowment in a pyramid scheme with a negative expected return. More than half of the participants invest regardless of their age, gender, education, income, and trust and fairness beliefs. Four interventions probe instruction tools that may deter pyramid investments. Exposure to possible payoff distributions or making payoff calculations diminishes investment rates, whereas seeing example pyramid outcomes or being exposed to a smaller pyramid scheme has no effect. Higher risk tolerance, preference for positively-skewed risk, and lower cognitive skills positively correlate with investment but explain a relatively small portion of investments.
    Keywords: pyramid schemes, instruction methods, risk preferences, experiments
    JEL: C90 D14 D81 D91
    Date: 2024–02
  16. By: OKOSHI Hirofumi; MUKUNOKI Hiroshi
    Abstract: This study investigates the effects of network externality on the policy competition between two countries regarding their attempts to attract a multinational enterprise (MNE). The two countries have different numbers of consumers and endogenously set a tax/subsidy on the MNE. The larger country has a local firm with a large market. Network externality makes the larger country with the local firm more attractive to the MNE because the resulting larger supply amplifies the network size. The MNE's location in the larger country can also benefit the local firm despite fiercer competition with the MNE while also benefiting consumers in all countries. Fiscal competition increases the likelihood of a larger country hosting the MNE when the network externality is large, but it promotes the MNE's location in a small country when the network externality is small. A location change from a smaller to a larger country, induced by fiscal competition, improves both countries' welfare or their joint welfare when the network externality is significant.
    Date: 2024–02
  17. By: Daniel Borup; Philippe Goulet Coulombe; Erik Christian Montes Schütte; David E. Rapach; Sander Schwenk-Nebbe
    Abstract: We introduce the performance-based Shapley value (PBSV) to measure the contributions of individual predictors to the out-of-sample loss for time-series forecasting models. Our new metric allows a researcher to anatomize out-of-sample forecasting accuracy, thereby providing valuable information for interpreting time-series forecasting models. The PBSV is model agnostic—so it can be applied to any forecasting model, including "black box" models in machine learning, and it can be used for any loss function. We also develop the TS-Shapley-VI, a version of the conventional Shapley value that gauges the importance of predictors for explaining the in-sample predictions in the entire sequence of fitted models that generates the time series of out-of-sample forecasts. We then propose the model accordance score to compare predictor ranks based on the TS-Shapley-VI and PBSV, thereby linking the predictors' in-sample importance to their contributions to out-of-sample forecasting accuracy. We illustrate our metrics in an application forecasting US inflation.
    Keywords: model interpretation; Shapley value; predictor importance; loss function; machine learning; inflation
    JEL: C22 C45 C52 C53 E31 E37
    Date: 2024–02–21

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