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on Game Theory |
| By: | Yoav Kolumbus; Joe Halpern; \'Eva Tardos |
| Abstract: | In repeated games, such as auctions, players typically use learning algorithms to choose their actions. The use of such autonomous learning agents has become widespread on online platforms. In this paper, we explore the impact of players incorporating monetary transfers into their agents' algorithms, aiming to incentivize behavior in their favor. Our focus is on understanding when players have incentives to make use of monetary transfers, how these payments affect learning dynamics, and what the implications are for welfare and its distribution among the players. We propose a simple game-theoretic model to capture such scenarios. Our results on general games show that in a broad class of games, players benefit from letting their learning agents make payments to other learners during the game dynamics, and that in many cases, this kind of behavior improves welfare for all players. Our results on first- and second-price auctions show that in equilibria of the ``payment policy game, '' the agents' dynamics can reach strong collusive outcomes with low revenue for the auctioneer. These results highlight a challenge for mechanism design in systems where automated learning agents can benefit from interacting with their peers outside the boundaries of the mechanism. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.20880&r= |
| By: | Mario Gilli; Andrea Sorrentino |
| Abstract: | In this paper we consider a deterministic complete information two groups contest where the effort choices made by the teammates are aggregated into group performance by the weakest-link technology (perfect complementarity), that is a "max-min group contest", as defined by Chowdhury et al. (2016). However, instead of a continuum effort set, we employ a binary action set. Further, we consider private good prizes, so that there is a sharing issue within the winning group. Therefore, we include two stages: the first one about the setting of a sharing rule parameter and the second one about simultaneous and independent actions' choices. The binary action set allow us to innovate on the existing literature by (i) characterizing the full set of the second stage equilibrium actions; (ii) computationally characterizing in MATLAB the set of within-group symmetric subgame perfect Nash equilibria in pure strategies in the entire game. We find conditions such that the set of within-group symmetric subgame perfect Nash equilibria in pure strategies have the cardinality of the continuum. We also check whether this paper's results are due to discreteness or to binary choice, proving that in this case there are no subgame perfect Nash equilibria in pure strategies, as proved in the continuum case in Gilli and Sorrentino (2024). |
| Keywords: | Group contests, sharing rules, indeterminacy. |
| JEL: | D74 D71 C72 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:mib:wpaper:539&r= |
| By: | Yingkai Li; Argyris Oikonomou |
| Abstract: | We study a single-agent contracting environment where the agent has misspecified beliefs about the outcome distributions for each chosen action. First, we show that for a myopic Bayesian learning agent with only two possible actions, the empirical frequency of the chosen actions converges to a Berk-Nash equilibrium. However, through a constructed example, we illustrate that this convergence in action frequencies fails when the agent has three or more actions. Furthermore, with multiple actions, even computing an $\varepsilon$-Berk-Nash equilibrium requires at least quasi-polynomial time under the Exponential Time Hypothesis (ETH) for the PPAD-class. This finding poses a significant challenge to the existence of simple learning dynamics that converge in action frequencies. Motivated by this challenge, we focus on the contract design problems for an agent with misspecified beliefs and two possible actions. We show that the revenue-optimal contract, under a Berk-Nash equilibrium, can be computed in polynomial time. Perhaps surprisingly, we show that even a minor degree of misspecification can result in a significant reduction in optimal revenue. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.20423&r= |
| By: | Avi Lichtig; Helene Mass |
| Abstract: | We extend the standard disclosure model between a sender and a receiver by allowing the receiver to independently gather partial information, by means of a test – a signal with at most k realizations. The receiver’s choice of test is observed by the sender and therefore influences his decision of whether to disclose. We characterize the optimal test for the receiver and show how it resolves the trade-off between informativeness and disclosure incentives. If the receiver were aiming at maximizing the informativeness, she would choose a deterministic test. In contrast, the optimal test involves randomization over signal realizations and maintains a simple structure. Such a structure allows us to interpret this randomization as the strategic use of uncertain evaluation standards for disclosure incentives. |
| Keywords: | Disclosure, Information Acquisition |
| JEL: | D82 D83 |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_543&r= |
| By: | Masaaki Fujii (Faculty of Economics, The University of Tokyo); Masashi Sekine (Graduate School of Economics, The University of Tokyo) |
| Abstract: | This paper presents an asset pricing model in an incomplete market involving a large number of heterogeneous agents based on the mean field game theory. In the model, we incorporate habit formation in consumption preferences, which has been widely used to explain various phenomena in financial economics. In order to characterize the market-clearing equilibrium, we derive a quadratic-growth mean field backward stochastic differential equation (BSDE) and study its well-posedness and asymptotic behavior in the large population limit. Additionally, we introduce an exponential quadratic Gaussian reformulation of the asset pricing model, in which the solution is obtained in a semi-analytic form. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:tky:fseres:2024cf1229&r= |
| By: | Michail Anthropelos; Constantinos Stefanakis |
| Abstract: | We consider an Ito-financial market at which the risky assets' returns are derived endogenously through a market-clearing condition amongst heterogeneous risk-averse investors with quadratic preferences and random endowments. Investors act strategically by taking into account the impact that their orders have on the assets' drift. A frictionless market and an one with quadratic transaction costs are analysed and compared. In the former, we derive the unique Nash equilibrium at which investors' demand processes reveal different hedging needs than their true ones, resulting in a deviation of the Nash equilibrium from its competitive counterpart. Under price impact and transaction costs, we characterize the Nash equilibrium as the (unique) solution of a system of FBSDEs and derive its closed-form expression. We furthermore show that under common risk aversion and absence of noise traders, transaction costs do not change the equilibrium returns. On the contrary, when noise traders are present, the effect of transaction costs on equilibrium returns is amplified due to price impact. |
| Date: | 2024–05 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2405.14418&r= |
| By: | Bizzarri, Matteo; Vega-Redondo, Fernando |
| Abstract: | We characterize the firm-level welfare effects of a small change in ownership overlap, and how it depends on the position in the production network.In our model, firms compete in prices, internalizing how their decisions affect the firms lying downstream as well as those that have common share-holders. While in a horizontal economy the common-ownership effects onequilibrium prices depend on firm markups alone, in the more general casedisplaying vertical inter-firm relationships a full knowledge of the production network is typically required. Addressing then the normative questionof what are the welfare implications of affecting the ownership structure, we show that, if costs of adjusting it are large, the optimal intervention isproportional to the Bonacich centrality of each firm in the weighted networkquantifying interfirm price-mediated externalities. Finally, we also explainthat the parameters of the model can be identified from typically availabledata, hence rendering our model amenable to empirical analysis. |
| Keywords: | Production Networks; Network Games; Common Ownership; Oligopoly |
| Date: | 2024–06–06 |
| URL: | https://d.repec.org/n?u=RePEc:cte:werepe:43949&r= |
| By: | Pablo Guillen; Archer Kirk; Lokendra Nedunuri |
| Abstract: | We use an online experiment to test the effect of an extreme kind of altruistic punishment, labelled hereafter Mutually Assured Destruction (MAD), on cooperation. We study the effect of MAD punishment under both symmetric and asymmetric versions of a Prisoners’ Dilemma (PD) game. Participants were asked to read explicit instructions, in which the outcomes of the PD game were explained in detail. Their understanding was then thoroughly tested by a battery of test questions. In order to rule out any fraudulent participation, those who failed to provide correct answers were excluded from participation, which resulted in relatively high attrition. The availability of MAD punishment dramatically increased cooperation. That resulted on efficiency gains, compensating for the rare instances of destructive punishment, in the symmetric treatment. We conclude that the threat of extreme forms of altruistic punishment might be likely at play in many real-life social dilemma situations. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:syd:wpaper:2024-10&r= |
| By: | Ehrhart, Karl-Martin; Eicke, Anselm; Hirth, Lion; Ocker, Fabian; Ott, Marion; Schlecht, Ingmar; Wang, Runxi |
| Abstract: | This paper discusses a capacity-based redispatch mechanism in which awarded market participants are compensated for their availability for redispatch, rather than activation. The rationale is to develop a market design that prevents so-called 'inc-dec gaming' when including flexible consumers with a market-based approach. We conduct a game-theoretical analysis of a capacity-based redispatch mechanism. Our analysis reveals that despite its intention, the capacity-based redispatch is prone to undesirable behavior of market participants. The reason is that the availability payment incentivizes participants to change their energy consumption (generation) behavior. However, this also applies to undesired participants who increase the redispatch requirement through participation. Under certain assumptions, the additional redispatch potential equals the additional redispatch demand it creates. Consequently, the mechanism does not resolve network constraints, while causing costs for the compensation payments. Furthermore, we study three alternative implementation options, none of which resolves the underlying problem. It follows from our analysis that a mechanism can only be promising if it is capable to distinguish between the potential participants to exclude the undesirable ones. |
| Keywords: | Energy market, Congestion management, Capacity-based redispatch, Game theory, Auctions |
| JEL: | D43 D44 L13 Q41 Q48 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:zewdip:298003&r= |
| By: | Han Jiang (Department of Economics, University of Ottawa, Ottawa, ON); Aggey Simons (Department of Economics, University of Ottawa, Ottawa, ON) |
| Abstract: | We study the dynamic interaction between donors’ contributions and the investment strategies of a non-profit organization (NPO) amid fluctuating donor income and varying financial market conditions. The analysis reveals a consistent pattern in the NPO’s allocation strategy, directing a fixed proportion of its endowment toward higher-risk assets. Notably, increased donor support often correlates with the NPO’s heightened activity in financial markets, which can occasionally reduce the provision of charitable goods. A significant finding is the NPO’s preference for environments with lower returns on risk-free assets. Additionally, the study delineates the contrasting impacts of financial market uncertainties and donor income variations on the decision-making processes of both donors and the NPO; while market volatility significantly shapes strategies for both groups, fluctuations in donor income have minimal impact on their strategic decisions. |
| Keywords: | Non-Profit Investments, Donor Dynamics, Financial Volatility, Risk Management, Stochastic Differential Game. |
| JEL: | D64 G11 G23 L31 C73 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ott:wpaper:2402e&r= |
| By: | Banerjee, Swapnendu; Saha, Soumyarup |
| Abstract: | We explore a power relationship between a ‘corrupt’ politician and a political worker where the politician can order an illegal corrupt effort to be performed by the worker. Using a moral hazard structure we show that when the politician’s power is sufficiently high the politician optimally uses power and relies less on wage incentives. But when the power is low, the politician optimally shuns power and relies more on wage incentives. We also talk about optimal bolstering of power through threats depending on the level of power of the politician. This model has implications on the larger principal-agent structure, although we model it as a political corruption game. |
| Keywords: | Power, Corruption, Hidden Action, Perception, Bolstering |
| JEL: | D86 J47 K42 |
| Date: | 2024–05–30 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121109&r= |