|
on Game Theory |
| By: | Daniel Luo |
| Abstract: | I study a repeated binary-action supermodular game with endogenous exit where many short-lived agents attempt to coordinate a revolt against a regime. The regime undertakes costly actions to increase the short-run players' coordination frictions, though acts only after if the revolt is unsuccessful, inducing a lack-of-commitment problem. In the complete-information repeated game, a folk theorem holds, with payoff multiplicity arising due to both the regime's dynamic incentives and agents' stage-game strategic complementarities. Neither the regime's reputational incentives nor belief dispersion among agents (via global-games type uncertainty) alone meaningfully refine the equilibrium payoff set. Together, though, the interaction between these two forces uniquely select the regime's highest payoff in equilibrium. Furthermore, under a Markov refinement, they select a unique equilibrium where the regime plays their optimal commitment action. Methodologically, I develop tools to analyze repeated games with endogenous exit where the regime's commitment action flexibly varies with their discount rate. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.18884&r= |
| By: | Alicia Vidler; Toby Walsh |
| Abstract: | We present a new type of game, the Liquidity Game. We draw inspiration from the UK government bond market and apply game theoretic approaches to its analysis. In Liquidity Games, market participants (agents) use non-cooperative games where the players' utility is directly defined by the liquidity of the game itself, offering a paradigm shift in our understanding of market dynamics. Each player's utility is intricately linked to the liquidity generated within the game, making the utility endogenous and dynamic. Players are not just passive recipients of utility based on external factors but active participants whose strategies and actions collectively shape and are shaped by the liquidity of the market. This reflexivity introduces a level of complexity and realism previously unattainable in conventional models. We apply Liquidity Game theoretic approaches to a simple UK bond market interaction and present results for market design and strategic behavior of participants. We tackle one of the largest issues within this mechanism, namely what strategy should market makers utilize when uncertain about the type of market maker they are interacting with, and what structure might regulators wish to see. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.02865&r= |
| By: | zhao, guo; Chai, Yingming |
| Abstract: | The class of weakly acyclic games captures many practical application domains, and is particularly relevant for multi-agent distributed control problems. However, reliably checking weak acyclicity is extremely computationally intractable (PSPACE-complete) in the worst case. The present paper identifies sufficient conditions for weak acyclicity by means of the transitive closure of individual conditional preference, which can be constructed in terms of better-reply improvement paths. This pure-ordinal approach leads to a novel connection between weak acyclic games and better-reply secure games. Specifically, a better-reply secure game is weakly acyclic if the better reply dynamics does not possess a dense orbit (in addition to the quasi-concavity of individual preferences as well as the usual convexity and compactness assumptions on strategy sets). These results give a partial answer to an open problem of finding applicable and tractable conditions for weak acyclicity, posed by Fabrikant, Jaggard, and Schapira in 2013. |
| Keywords: | pure-strategy Nash equilibrium, weakly acyclicity, better reply dynamics, better-reply security |
| JEL: | C72 D01 |
| Date: | 2024–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120789&r= |
| By: | Luke Snow; Vikram Krishnamurthy |
| Abstract: | This paper constructs an algorithmic framework for adaptively achieving the mechanism design objective, finding a mechanism inducing socially optimal Nash equilibria, without knowledge of the utility functions of the agents. We consider a probing scheme where the designer can iteratively enact mechanisms and observe Nash equilibria responses. We first derive necessary and sufficient conditions, taking the form of linear program feasibility, for the existence of utility functions under which the empirical Nash equilibria responses are socially optimal. Then, we utilize this to construct a loss function with respect to the mechanism, and show that its global minimization occurs at mechanisms under which Nash equilibria system responses are also socially optimal. We develop a simulated annealing-based gradient algorithm, and prove that it converges in probability to this set of global minima, thus achieving adaptive mechanism design. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.15391&r= |
| By: | Claus-Jochen Haake (Paderborn University); Thomas Streck (Paderborn University) |
| Abstract: | We consider two-person bargaining problems and provide axioms for a mapping that assigns to each bargaining problem a number in the unit interval that reflects how hard it is to find an agreement. We term this notion the contestedness of a bargaining problem and show that there is one and only one mapping satisfying the axioms. Furthermore, the axioms are shown to be logically independent. The mapping is based on the standard traveling time used in Perles and Maschler (1981) to define the bargaining solution therein. |
| Keywords: | Bargaining Problem, Contestedness, Perles-Maschler bargaining solutio |
| JEL: | C78 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:pdn:ciepap:160&r= |
| By: | Andreas Haufler; Hayato Kato |
| Abstract: | The Global Minimum Tax (GMT) is applied only to firms above a certain size threshold. We set up a simple model of tax competition and profit shifting by heterogeneous multinational firms to evaluate the effects of this partial coverage of the GMT. A non-haven and a haven country are bound by the GMT rate for large multinationals, but can set tax rates for firms below the threshold non-cooperatively. We show that the introduction of the GMT with a moderate tax rate increases tax revenues in both the non-haven and the haven countries. Gradual increases in the GMT rate, however, trigger a sudden change in the tax competition equilibrium from a uniform to a split corporate tax rate, at which tax revenues in the non-haven country decline. In contrast, gradual increases in the coverage of the GMT never harm the non-haven country. We also discuss the quantitative effects of introducing a $15\%$ GMT rate in a calibrated version of our model. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.14302&r= |
| By: | Xiaoyu Cheng; Yonggyun Kim |
| Abstract: | A Blackwell-monotone information cost function assigns higher costs to Blackwell more informative experiments. This paper provides simple necessary and sufficient conditions for Blackwell monotonicity over finite experiments. The key condition is a system of linear differential inequalities that are convenient to check given an arbitrary cost function. When the cost function is additively separable across signals, our characterization implies that Blackwell monotonicity is equivalent to sublinearity. This identifies a wide range of practical information cost functions. Finally, we apply our results to bargaining and persuasion problems with costly information. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.15158&r= |
| By: | Qianjun Lyu |
| Abstract: | This paper studies the optimal refund mechanism when an uninformed buyer can privately acquire information about his valuation of a product over time. We consider a class of refund mechanisms based on stochastic return policies: if the buyer requests a return, the seller will issue a (partial) refund while allowing the buyer to keep the product with some probability. Such return policies can affect the buyer's learning process and thereby influence the return rate. Nevertheless, we show that the optimal refund mechanism is deterministic and takes a simple form: either the seller offers a sufficiently low price and disallows returns to deter buyer learning, or she offers a sufficiently high price with free returns to implement maximal buyer learning. The form of the optimal refund mechanism is non-monotone in the buyer's prior belief regarding his valuation. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.14927&r= |
| By: | Peter Devine (Boston College); Sumit Joshi (George Washington University); Ahmed Saber Mahmud (Virginia Polytechnic Institute and State University) |
| Abstract: | We propose a multilayer network approach to alliance formation. In a signed affinity layer, agents are partitioned into clusters, with friendly relations within and hostile connections across clusters. Agents then form defensive collaborations in an alliance layer as follows: Agents in the same cluster form a nested split graph with degree inversely correlated to the level of hostility, and agents from disparate clusters with high-degree and low-hostility form cliques. Within cliques, agents from a cluster that is "intermediate" in terms of discord serve as a bridge to interconnect agents from more "extreme" clusters. |
| Keywords: | Alliance formation, signed graphs, nested split graphs, pairwise stability, cliques |
| JEL: | C72 D74 D85 |
| Date: | 2024–05–10 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:1071&r= |
| By: | Kolos Csaba \'Agoston; Veronika Varga |
| Abstract: | Since 2016 the operation of insurance companies in the European Union is regulated by the Solvency II directive. According to the EU directive the capital requirement should be calculated as a 99.5\% of Value at Risk. In this study, we examine the impact of this capital requirement constraint on equilibrium premiums and capitals. We discuss the case of the oligopoly insurance market using Bertrand's model, assuming profit maximizing insurance companies facing Value at Risk constraints. First we analyze companies' decision on premium level. The companies strategic behavior can result positive as well as negative expected profit for companies. The desired situation where competition eliminate positive profit and lead the market to zero-profit state is rare. Later we examine ex post and ax ante capital adjustments. Capital adjustment does not rule out market anomalies, although somehow changes them. Possibility of capital adjustment can lead the market to a situation where all of the companies suffer loss. Allowing capital adjustment results monopolistic premium level or market failure with positive probabilities. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.17915&r= |
| By: | Ignatenko, Anna (Dept. of Economics, Norwegian School of Economics and Business Administration) |
| Abstract: | This paper documents price discrimination by transport companies, revealing their market power. Larger shipments of similar products sharing a container receive lower prices. A trade model with non-linear pricing of transportation rationalizes this with economies of scale and price discrimination, highlighting their distinct policy implications. To distinguish them, I test for the effect of competition on freight price variation specific to price discrimination. Using unexpected water level changes to instrument for competition in river transportation, I find increased competition causes steeper discounts for larger shipments. Thus, market power in transportation is less distortionary for larger firms gaining additional cost advantages. |
| Keywords: | price discrimination; quantity discounts; transportation; competition; economies of scale; mark-ups; market power |
| JEL: | D22 D43 F10 F12 F14 |
| Date: | 2024–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:nhheco:2024_006&r= |
| By: | Minwu Kim |
| Abstract: | This work develops a predictive model to identify potential targets of activist investment funds, which strategically acquire significant corporate stakes to drive operational and strategic improvements and enhance shareholder value. Predicting these targets is crucial for companies to mitigate intervention risks, for activists to select optimal targets, and for investors to capitalize on associated stock price gains. Our analysis utilizes data from the Russell 3000 index from 2016 to 2022. We tested 123 variations of models using different data imputation, oversampling, and machine learning methods, achieving a top AUC-ROC of 0.782. This demonstrates the model's effectiveness in identifying likely targets of activist funds. We applied the Shapley value method to determine the most influential factors in a company's susceptibility to activist investment. This interpretative approach provides clear insights into the driving forces behind activist targeting. Our model offers stakeholders a strategic tool for proactive corporate governance and investment strategy, enhancing understanding of the dynamics of activist investing. |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2404.16169&r= |
| By: | Barron, Kai; Fries, Tilman |
| Abstract: | We study how one person may shape the way another person interprets objective information. They do this by proposing a sense-making explanation (or narrative). Using a theory-driven experiment, we investigate the mechanics of such narrative persuasion. Our results reveal several insights. First, narratives are persuasive: We find that they systematically shift beliefs. Second, narrative fit (coherence with the facts) is a key determinant of persuasiveness. Third, this fit-heuristic is anticipated by narrative-senders, who systematically tailor their narratives to the facts. Fourth, the features of a competing narrative predictably influence both narrative construction and adoption. |
| Keywords: | Narratives, beliefs, explanations, mental models, experiment, financial advice |
| JEL: | D83 G40 G50 C90 |
| Date: | 2024 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:wzbeoc:295066&r= |