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on Game Theory |
| By: | M. Ali Khan; Arthur Paul Pedersen; David Schrittesser |
| Abstract: | This letter: (i) reformulates the theorems of Adler-Daskalakis-Papadimitriou (2009) and Raimondo (2023) on two-player adversarial games as a generalized result with a simplified proof, (ii) forges connections to work on strategically zero-sum games by Moulin-Vial (1978), and on axiomatizations of multi-linear utilities of n-person games by Fishburn-Roberts (1976, 1978). The simplification and the connections on offer give prominence to two-person zero-sum games studied by Aumann (1961), Shapley (1964) and Rosenthal (1974), and also to recent algorithmic work in computer science. We give a productive reorientation to the subject by bringing the two communities together under the rubric of adversarial games. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.04029&r=gth |
| By: | Cui, Chi; Dai, Ming; Schwieren, Christiane |
| Abstract: | In this paper, we experimentally investigate how sending a signal of following social norms impacts people’s cooperative behavior in a repeated public goods game, where we disentangle the effect of strategy and internalization of social norms on cooperation. We find that under the signaling mechanism, less cooperative players disguise themselves in the rule-following game, but this does not decrease cooperation overall. More importantly, the signaling mechanism has a heterogeneous effect on cooperation in rule-following and rule-breaking groups: It increases cooperation in rule-following groups but decreases cooperation in rule-breaking groups. Finally, the signaling mechanism tends to offset the decline of contributions among participants in rule-breaking groups rather than rule-following groups. Overall, this paper provides a feasible way to improve social cooperation and enriches the literature on cooperation in the public goods game. |
| Keywords: | public goods game; cooperation; signaling; internalization of social norms |
| Date: | 2024–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0746&r=gth |
| By: | Alistair Barton |
| Abstract: | We study finite-state communication games in which the sender's preference is perturbed by random private idiosyncrasies. Persuasion is generically impossible within the class of statistically independent sender/receiver preferences -- contrary to prior research establishing persuasive equilibria when the sender's preference is precisely transparent. Nevertheless, robust persuasion may occur when the sender's preference is only slightly state-dependent/idiosyncratic. This requires approximating an `acyclic' equilibrium of the transparent preference game, generically implying that this equilibrium is also `connected' -- a generalization of partial-pooling equilibria. It is then necessary and sufficient that the sender's preference satisfy a monotonicity condition relative to the approximated equilibrium. If the sender's preference further satisfies a `semi-local' version of increasing differences, then this analysis extends to sender preferences that rank pure actions (but not mixed actions) according to a state-independent order. We apply these techniques to study (1) how ethical considerations, such as empathy for the receiver, may improve or impede comm |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.13983&r=gth |
| By: | Luca Anderlini; GaOn Kim |
| Abstract: | We examine ``tournament'' second-price auctions in which $N$ bidders compete for the right to participate in a second stage and contend against bidder $N+1$. When the first $N$ bidders are committed so that their bids cannot be changed in the second stage, the analysis yields some unexpected results. The first $N$ bidders consistently bid above their values in equilibrium. When bidder $N+1$ is sufficiently stronger than the first $N$, overbidding leads to an increase in expected revenue in comparison to the standard second-price auction when $N$ is large. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.08102&r=gth |
| By: | Choi, S.; Goyal, S.; Guo, F.; Moisan, F. |
| Abstract: | This paper presents experimental evidence on games where individuals can unilaterally decide on their links with each other. Linking decisions give rise to directed graphs. We consider two classes of situations: one, benefits flow along the direction of the network paths (one-way flow), and two, when the benefits flow on network paths without regard to the direction of links (two-way flow). Our experiments reveal that in the one-way flow model subjects create sparse networks whose distance grows and efficiency falls as group size grows; by contrast, in the two-way flow model subjects create sparse and small world networks whose efficiency remains high in both small and large groups. We show that a bounded rational model that combines myopic best response with targeting a most connected individual provides a coherent account of our experimental data. |
| Keywords: | Data, Group Size, Network Formation, Network Games, Networks |
| Date: | 2024–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2412&r=gth |
| By: | Masaki Miyashita; Takashi Ui |
| Abstract: | The analysis of large population economies with incomplete information often entails the integration of a continuum of random variables. We showcase the usefulness of the integral notion \`a la Pettis (1938) to study such models. We present several results on Pettis integrals, including convenient sufficient conditions for Pettis integrability and Fubini-like exchangeability formulae, illustrated through a running example. Building on these foundations, we conduct a unified analysis of Bayesian games with arbitrarily many heterogeneous agents. We provide a sufficient condition on payoff structures, under which the equilibrium uniqueness is guaranteed across all signal structures. Our condition is parsimonious, as it turns out necessary when strategic interactions are undirected. We further identify the moment restrictions, imposed on the equilibrium action-state joint distribution, which have crucial implications for information designer's problem of persuading a population of strategically interacting agents. To attain these results, we introduce and develop novel mathematical tools, built on the theory of integral kernels and reproducing kernel Hilbert spaces in functional analysis. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.17605&r=gth |
| By: | Attar, Andrea; Bozzoli, Lorenzo; Strausz, Roland |
| Abstract: | We develop a new approach to contract renegotiation under informational frictions. Specically, we consider mediated mechanisms which cannot be contingent on any subsequent offer, but can generate a new source of asymmetric information between the contracting parties. Taking as a reference the canonical framework of Fudenberg and Tirole (1990), we show that, if mediated mechanisms are allowed, the corresponding renegotiation game admits only one equilibrium allocation, which coincides with the second-best one. Thus, the inefficiencies typically associated to the threat of renegotiation may be completely offset by the design of more sophisticated trading mechanisms. |
| JEL: | D43 D82 D86 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:129278&r=gth |
| By: | Sebastian Bachler; Armando Holzknecht; Jürgen Huber; Michael Kirchler |
| Abstract: | While headline news frequently report cases of large-scale fraud, corruption, and other immoral behavior, laboratory experiments often show prosocial behavior in strategic games. To reconcile and explain these seemingly conflicting observations, Alós-Ferrer et al. (2022) introduced the Big Robber Game — an altered dictator game where one robber can take money from multiple victims. They reported low prosocial behavior among a pool of student subjects who behaved more prosocial in bilateral games than in the Big Robber Game. In our study, we employ the Big Robber Game within a 2x2 factorial design, engaging over 860 participants to examine the behaviors of financial professionals versus students. Moreover, inspired by the four-eyes principle, a common practice in the finance industry, we investigate decision-making both individually and in pairs. We find overall support for the results of Alós-Ferrer et al. (2022) and that finance professionals rob less than students. Accounting for a multitude of specifications, socio-demographic characteristics and individual preferences, we report that treatment differences disappear, indicating similar behavior across individuals, pairs, finance professionals, and students. Finally, in a series of non-pre-registered exploratory analyses, we show that victims expect finance professionals to rob significantly more than student robbers, implying that finance professionals are considered to be less pro-social than students’ peers. |
| Keywords: | Selfishness, Social Preferences, Finance Professionals, Group decisions, Experimental Finance |
| JEL: | C91 C93 D91 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:inn:wpaper:2024-04&r=gth |
| By: | Peyman Khezr; Vijay Mohan; Lionel Page |
| Abstract: | In the Knapsack Problem a set of indivisible objects, each with different values and sizes, must be packed into a fixed-size knapsack to maximize the total value. The knapsack problem is known to be an NP-hard problem even when there is full information regarding values and sizes. In many real-world situations, however, the values of objects are private information, which adds another dimension of complexity. In this paper we examine the knapsack problem with private information by investigating three practical auctions as possible candidates for payment rules in a setup where the knapsack owner sells the space to object owners via an auction. The three auctions are the discriminatory price, the generalized second-price and the uniform-price auctions. Using a Greedy algorithm for allocating objects, we analyze bidding behavior, revenue and efficiency of these three auctions using theory, lab experiments, and AI-enriched simulations. Our results suggest that the uniform-price auction has the highest level of truthful bidding and efficiency while the discriminatory price and the generalized second-price auctions are superior in terms of revenue generation. |
| Date: | 2024–02 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.07928&r=gth |
| By: | Erika Domotor; Adrien Fillon; Kenzo Nera; Zacharias Maniadis |
| Abstract: | The prevalence of conspiracy theories is a concern in western countries, yet the phenomenon is rarely addressed in experimental economics. In two preregistered online studies (NStudy 1 = 97, NStudy 2 = 203) we examine the relationship between exposure to conspiracy modes of thinking, self-reported conspiracy mentality, and behaviour in an economic game that measures strategic sophistication. Part of our design was based on Balafoutas, Libman, Selamis, and Vollan (2021), who found a positive relationship between exposure to conspiracy modes of thinking and strategic sophistication. Our results did not corroborate their findings in an online setting. Our measures of conspiracy mentality were modestly correlated with strategic sophistication in Study 2, but not in Study 1. Conspiracy mentality was also correlated with manipulativeness. |
| Keywords: | Conspiracy theory, k-level reasoning, trust, strategic sophistication |
| JEL: | D91 C90 C72 |
| Date: | 2024–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:ucy:cypeua:01-2024&r=gth |
| By: | Roberto Galbiati (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Emeric Henry (Institut d'Études Politiques [IEP] - Paris); Nicolas Jacquemet (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | Formal enforcement punishing defectors can sustain cooperation by changing incentives. In this paper, we introduce a second effect of enforcement: it can also affect the capacity to learn about the group's cooperativeness. Indeed, in contexts with strong enforcement, it is difficult to tell apart those who cooperate because of the threat of fines from those who are intrinsically cooperative types. Whenever a group is intrinsically cooperative, enforcement will thus have a negative dynamic effect on cooperation because it slows down learning about prevalent values in the group that would occur under a weaker enforcement. We provide theoretical and experimental evidence in support of this mechanism. Using a lab experiment with independent interactions and random rematching, we observe that, in early interactions, having faced an environment with fines in the past decreases current cooperation. We further show that this results from the interaction between enforcement and learning: the effect of having met cooperative partners has a stronger effect on current cooperation when this happened in an environment with no enforcement. Replacing one signal of deviation without fine by a signal of cooperation without fine in a player's history increases current cooperation by 10%; while replacing it by a signal of cooperation with fine increases current cooperation by only 5%. |
| Keywords: | Enforcement, social values, cooperation, learning, spillovers, repeated games, experiments |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04511257&r=gth |
| By: | Bandyopadhyay, Siddhartha; Deb, Moumita; Lohse, Johannes; McDonald, Rebecca |
| Abstract: | Majority voting is considered an efficient information aggregation mechanism in committee decision-making. We examine if this holds in environments where voters first need to acquire information from sources of varied quality and cost. In such environments, efficiency may depend on free-riding incentives and the ‘transparency’ regime - the knowledge voters have about other voters’ acquired information. Intuitively, more transparent regimes should improve efficiency. Our theoretical model instead demonstrates that under some conditions, less transparent regimes can match the rate of efficient information aggregation in more transparent regimes if all members cast a vote based on the information they hold. However, a Pareto inferior swing voter’s curse (SVC) equilibrium arises in less transparent regimes if less informed members abstain. We test this proposition in a lab experiment, randomly assigning participants to different transparency regimes. Results in less transparent regimes are consistent with the SVC equilibrium, leading to less favourable outcomes than in more transparent regimes. We thus offer the first experimental evidence on the effects of different transparency regimes on information acquisition, voting, and overall efficiency. |
| Keywords: | Information acquisition; Voting; Transparency; Swing voter |
| Date: | 2024–03–07 |
| URL: | http://d.repec.org/n?u=RePEc:awi:wpaper:0744&r=gth |
| By: | Elliott, M.; Galeotti, A.; Koh, A.; Li, W. |
| Abstract: | There are many markets that are networked in these sense that not all consumers have access to (or are aware of) all products, while, at the same time, firms have some information about consumers and can distinguish some consumers from some others (for example, in online markets through cookies). With unit demand and price-setting firms we give a complete characterization of all welfare outcomes achievable in equilibrium (for arbitrary buyer-seller networks and arbitrary information structures), as well as the designs (networks and information structures) which implement them. |
| Date: | 2023–02–04 |
| URL: | http://d.repec.org/n?u=RePEc:cam:camjip:2304&r=gth |
| By: | Ian Ball; Teemu Pekkarinen |
| Abstract: | We study the design of an auction for a license. Each agent has a signal about his future profit from winning the license. If the license is allocated, the winner can be charged a flexible royalty based on the profits he reports. The principal can audit the winner, at a cost, and charge limited penalties. We solve for the auction that maximizes revenue, net auditing costs. In this auction, the winner pays linear royalties up to a cap, beyond which there is no auditing. A more optimistic bidder pays more upfront in exchange for a lower royalty cap. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.19945&r=gth |
| By: | David K. Levine; Lee E. Ohanian |
| Abstract: | Much has been written about deterrence, the process of committing to punish an adversary to prevent an attack. But in sufficiently rich environments where attacks evolve over time, formulating a strategy involves not only deterrence but also appeasement, the less costly process of not responding to an attack. This paper develops a model that integrates these two processes to analyze the equilibrium time paths of attacks, punishment, and appeasement. We study an environment in which a small attack is launched and can be followed by a larger attack. There are pooling and separating equilibria. The pooling equilibrium turns the common intuition that appeasement is a sign of weakness, inviting subsequent attacks, on its head, because appeasement is a sign of strength in the pooling case. In contrast, the separating equilibrium captures the common intuition that appeasement is a sign of weakness, but only because deterrence in this equilibrium fails. We interpret several episodes of aggression, appeasement, and deterrence: Neville Chamberlain's responses to Hitler, Putin's invasion of Ukraine, Israel's response to Hamas, Turkey's invasion of Cyprus, and Serbia's attacks in Kosovo. |
| JEL: | D0 D82 F0 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32280&r=gth |
| By: | Keshav Dogra |
| Abstract: | Equilibrium assumptions posit relations between different people's beliefs and behavior without describing a process that causes these relations to hold. I show that because equilibrium models do not describe a causal process whereby one endogenous variable affects another, attempts to decompose the effects of shocks into “direct” and “indirect” effects can suggest misleading predictions about how these models work. Equilibrium assumptions also imply absurd paradoxes: history can determine future behavior without affecting any intervening state variables today; individuals can learn information that no one originally possesses by observing each other’s actions. This makes equilibrium models unreliable tools to study how economic systems coordinate activity and aggregate dispersed information. I describe how to construct non-equilibrium models that avoid these paradoxes and can be interpreted causally. |
| Keywords: | equilibrium; disequilibrium; mechanisms; Causality; paradoxes |
| JEL: | B41 C70 D50 D83 E70 |
| Date: | 2024–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fednsr:98023&r=gth |
| By: | Andrea Canidio (IMT School for Advanced Studies, Lucca, Italy); Vincent Danos (DI-ENS - Département d'informatique - ENS Paris - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris sciences et lettres - Inria - Institut National de Recherche en Informatique et en Automatique - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We provide a game-theoretic analysis of the problem of front-running attacks. We use it to distinguish attacks from legitimate competition among honest users for having their transactions included earlier in the block. We also use it to introduce an intuitive notion of the severity of front-running attacks. We then study a simple commit-reveal protocol and discuss its properties. This protocol has costs because it requires two messages and imposes a delay. However, we show that it prevents the most severe front-running attacks while preserving legitimate competition between users, guaranteeing that the earliest transaction in a block belongs to the honest user who values it the most. When the protocol does not fully eliminate attacks, it nonetheless benefits honest users because it reduces competition among attackers (and overall expenditure by attackers). This paper was accepted by Joshua Gans, business strategy. Funding: The authors gratefully acknowledge the financial support of the Ethereum Foundation [Grant FY22-0840]. |
| Date: | 2023–09–06 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04310293&r=gth |
| By: | Luca Anderlini; Larry Samuelson; Daniele Terlizzese |
| Abstract: | We examine an economy in which interactions are more productive if agents can trust others to refrain from cheating. Some agents are scoundrels, who always cheat, while others cheat only if the cost of cheating, a decreasing function of the proportion of cheaters, is sufficiently low. The economy exhibits multiple equilibria. As the proportion of scoundrels in the economy declines, the high-trust equilibrium can be disrupted by arbitrarily small perturbations or infusions of low-trust agents, while the low-trust equilibrium becomes impervious to perturbations and infusions of high-trust agents. The resilience of trust may thus hinge upon the prevalence of scoundrels. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.12917&r=gth |
| By: | Andrea Titton |
| Abstract: | This paper investigates the role of supply chain unobservability in generating endogenously fragile production networks. In a simple production game, in which firms need to multisource to hedge against suppliers' risk under unobservability, firms underdiversify vis-a-vis the social optimum. The unobservability of suppliers' relations is the driver behind this. In production networks where upstream risk is highly correlated and supplier relationships are not observable, the marginal risk reduction of adding an additional supplier is low, because this additional supplier's risk is likely to be correlated to that of existing suppliers. This channel reduces firm incentives to diversify, which gives rise to inefficiently fragile production networks. By solving the social planner problem, I show that, if the risk reduction experienced downstream resulting from upstream diversification were to be internalised by upstream firms, endogenous production networks would be resilient to most levels of risk. Furthermore, I show that the opaqueness of the supply chain yields less fragile but more inefficient production networks. Despite its stylised form, the model identifies the trade-off firms face when diversifying risk and isolates the mechanism that aggregates these decisions into a production network. Furthermore, it maps the conditions of the trade-off, such as expected profits of the firm or the pairing costs, to the properties of the production network. |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2403.16632&r=gth |
| By: | John W. Barry; Bruce I. Carlin; Alan D. Crane; John Graham |
| Abstract: | During project development, costs are endogenously determined through delegated bargaining with counterparties. In surveys, nearly 80% of CFOs report using an elevated hurdle rate, the implications of which we explore in a delegated bargaining model. We show that elevated hurdle rates can convey a bargaining advantage that exceeds the opportunity cost of forgone projects, whether hurdle rate buffers arise for strategic or non-strategic reasons. Using CFO survey data, we find buffer use is negatively related to the cost of capital and ex ante bargaining power, consistent with the model, and that realized returns exhibit “beat the hurdle rate benchmark” behavior. |
| JEL: | D21 G30 G31 G34 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32283&r=gth |
| By: | Balleer, Almut; Duernecker, Georg; Forstner, Susanne; Goensch, Johannes |
| Abstract: | Recent research documents mounting evidence for sizable and persistent biases in individual labor market expectations. This paper incorporates subjective expectations into a general equilibrium labor market model and analytically studies the implications of biased expectations for wage bargaining, vacancy creation, worker flows and labor market policies. Importantly, we find that the specific assumption about the frequency of wage bargaining crucially shapes the propagation mechanism through which expectation biases affect bargained wages and equilibrium outcomes. Moreover, we show that the presence of biased beliefs can qualitatively alter the equilibrium effects of labor market policies. Lastly, when allowing for biased firms' beliefs, we establish that only the difference between firms' and workers' biases matters for the bargained wage but not the size of biases. |
| Abstract: | Jüngste Forschungsergebnisse belegen eine deutliche und persistente Verzerrung individueller Arbeitsmarkterwartungen. In diesem Papier werden subjektive Erwartungen in ein allgemeines Gleichgewichtsmodell des Arbeitsmarktes eingebunden und die Auswirkungen von verzerrten Erwartungen auf Lohnverhandlungen, die Schaffung von Arbeitsplätzen, Arbeitnehmerströme und die Arbeitsmarktpolitik analytisch untersuch. Als besonders wichtig für den Propagationsmechanismus von Arbeitsmarkterwartungen auf Löhne stellt sich die Frequenz von Lohnverhandlungen heraus. Darüber hinaus ist der Unterschied in verzerrten Erwartungen zwischen Unternehmen und Arbeitnehmer wichtiger für den ausgehandelten Lohn als der Umfang der Verzerrungen selbst. Darüber hinaus zeigen wir, dass verzerrte Erwartungen die Gleichgewichtseffekte arbeitsmarktpolitischer Maßnahmen qualitativ verändern kann. |
| Keywords: | Subjective expectations, labor markets, search and matching, bargaining, policy |
| JEL: | E24 J64 D84 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:rwirep:287765&r=gth |