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on Game Theory |
| By: | Matt Van Essen (Department of Economics, University of Tennessee) |
| Abstract: | We introduce a unifying stability concept to cooperative game theorythe equity equilibrium. A central authority selects an outcome of the game to enforce and evaluates its stability using a collection of functions called a complaint system.These complaints are used to identify the grievances against and the concessions to each player. Equity equilibrium occurs when an individually rational payo¤ con guration balances the grievances and concessions of each player. We establish the existence of equity equilibrium for any valid complaint system and under any coalition structure. Next, we show that equity equilibrium under speci c complaint systems characterizes the kernel, the Shapley value, and the generalized Nash bargaining solution of a cooperative game. We show how simplicial algorithms can be employed for computing any type of equity equilibrium. This approach is illustrated with an example from the Tennessee Valley Authority. |
| Keywords: | Cooperative Games, Equity Equilibrium, Kernel, Shapley Value, Computation of Cooperative Solutions |
| JEL: | C92 D82 D9 H41 Q51 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:ten:wpaper:2024-04_1 |
| By: | Beck, Dominik |
| Abstract: | I construct a continuous-time market entry game to experimentally investigate whether continuous-time interaction increases the incumbent’s reputation compared to discrete-time interaction. In the model, entrants can build capacity up to a certain threshold in order to enter the market, while the incumbent can deter entry to influence the entrant’s decision. In continuous time, players can adjust their actions at any moment, whereas in discrete time, actions are limited to a few simultaneous moves. In the experiment, both games are repeated five times in a row with a fixed incumbent and changing entrants. Through the transmission of distinct information among subsequent entrants, the incumbent is able to build reputation throughout the game. In continuous time, the incumbent achieves a significantly higher reputation. Moreover, when considering reputation in a round-based view, it becomes evident that reputation reaches a high level already in the first round, whereas in discrete time, it takes about three rounds to develop. These insights can be attributed to enhanced information transfer in continuous time. Through frequent and endogenous action changes, the incumbent is able to send more and clearer entry-deterring signals. |
| Keywords: | continuous-time game, reputation building, market entry, Chain Store Game, entry deterrence, laboratory experiment |
| JEL: | C72 C92 L10 |
| Date: | 2024–11–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122772 |
| By: | Raouf Boucekkine; Giorgio Fabbri; Salvatore Federico; Fausto Gozzi; Ted Loch-Temzelides; Cristiano Ricci |
| Abstract: | We develop an Integral Transformation Method (ITM) for the study of suitable optimal control and differential game models. This allows for a solution to such dynamic problems to be found through solving a family of optimization problems parametrized by time. The method is quite flexible, and it can be used in several economic applications where the state equation and the objective functional are linear in a state variable. We illustrate the ITM in the context of a two-country integrated assessment climate model. We characterize emissions, consumption, transfers, and welfare by computing the Nash equilibria of the associated dynamic game. We then compare them to efficiency benchmarks. Further, we apply the ITM in a robust control setup, where we investigate how (deep) uncertainty affects climate outcomes. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.01749 |
| By: | Hao Chung; Ke Wu; Elaine Shi |
| Abstract: | Today, many auctions are carried out with the help of intermediary platforms like Google and eBay. We refer to such auctions as platform-assisted auctions.Traditionally, the auction theory literature mainly focuses on designing auctions that incentivize the buyers to bid truthfully, assuming that the platform always faithfully implements the auction. In practice, however, the platforms have been found to manipulate the auctions to earn more profit, resulting in high-profile anti-trust lawsuits. We propose a new model for studying platform-assisted auctions in the permissionless setting. We explore whether it is possible to design a dream auction in thisnew model, such that honest behavior is the utility-maximizing strategy for each individual buyer, the platform, the seller, as well as platform-seller or platform-buyer coalitions.Through a collection of feasibility and infeasibility results, we carefully characterize the mathematical landscape of platform-assisted auctions. We show how cryptography can lend to the design of an efficient platform-assisted auction with dream properties. Although a line of works have also used MPC or the blockchain to remove the reliance on a trusted auctioneer, our work is distinct in nature in several dimensions.First, we initiate a systematic exploration of the game theoretic implications when the service providers are strategic and can collude with sellers or buyers. Second, we observe that the full simulation paradigm is too stringent and leads to high asymptotical costs. Specifically, because every player has a different private outcomein an auction protocol, running any generic MPC protocol among the players would incur at least $n^2$ total cost. We propose a new notion of simulation calledutility-dominated emulation.Under this new notion, we showhow to design efficient auction protocols with quasilinear efficiency. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.03141 |
| By: | Ohnishi, Kazuhiro |
| Abstract: | Over the past approximately 30 years, many researchers have examined oligopoly models where firms endogenously select the timing of their action decisions. Therefore, this paper studies a mixed triopoly model featuring competition between a labour-managed firm, a capitalist firm and a state-owned firm. The sequence of events is as follows. In stage 0, each firm independently and simultaneously selects either ‘stage 1’ or ‘stage 2’. In this context, stage 1 denotes that a firm produces in stage 1, whereas stage 2 signifies that it produces in stage 2. In stage 1, if a firm opts for stage 1, it determines its output for this stage. In stage 2, if a firm chooses stage 2, it decides on its output for this stage. Upon the conclusion of the game, the market opens, and all firms sell their outputs. The purpose of this paper is to present the equilibrium outcome of triopoly competition where a state-owned firm, a labour-managed firm and a capitalist firm compete in quantities. As a result of the analysis, this paper reveals that there exists an equilibrium wherein both the labour-managed firm and the capitalist firm assume leadership roles. The paper finds that the state-owned firm is precluded from functioning as the Stackelberg leader. |
| Keywords: | Capitalist firm; Cournot game; Endogenous timing; Labour-managed firm; State-owned firm |
| JEL: | C72 D21 L30 |
| Date: | 2024–12–17 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:123007 |
| By: | Loriente Martín Iñaki; Diez Juan Cruz |
| Abstract: | In 1950, Harold W. Kuhn introduced a simplified poker variant referred to as Kuhn Poker and solved it using the notion of Nash Equilibrium. His pioneering work inspired subsequent scholars who applied similar methodologies to other poker versions. In contrast, we adopt a different procedure by employing Harsanyi’s approach to reach a Perfect Bayesian Equilibrium (PBE), a concept that emerged two decades after Kuhn’s original solutions. While computational techniques have advanced the analysis of various poker variations, achieving a PBE remains elusive. Some studies suffer from methodological flaws, as they overlook the importance of incorporating beliefs into their analysis. In our research, we also conducted a rationality study and found that relaxing the sophistication of a player leads to a shift in optimal strategies towards more exploitative ones. |
| JEL: | C7 D8 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:aep:anales:4742 |
| By: | Glätzle-Rützler, Daniela (University of Innsbruck); Sutter, Matthias (Max Planck Institute for Research on Collective Goods); Zoller, Claudia (Management Center Innsbruck) |
| Abstract: | Efficient coordination is a major source of efficiency gains. We study in an experimental coordination game with 718 children and teenagers, aged 9 to 18 years, the strategies played in pre-adulthood. We find no robust age effects in the aggregate, but see that smaller group sizes and larger incentives increase the likelihood of choosing the efficient strategy. Beliefs play an important role as well, as subjects are more likely to play the efficient strategy when they expect others to do so as well. Our results are robust to controlling for individual risk-, time-, and social preferences. |
| Keywords: | coordination game, age, group size, incentives, children, experiment |
| JEL: | C91 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17519 |
| By: | Piazolo, David |
| Abstract: | This paper theoretically investigates the strategic implications of varying reliability of bargaining partners under unanimous and non-unanimous voting. Three players (one proposer, two responders) bargain over the distribution of a pie. One responder has private information about his valuation of finding an agreement, implying signaling values that differ substantially between voting rules and are affected by the other responder’s reliability. Under unanimity rule, the responder with private information benefits from voting “no” because this signals that he requires a larger compensation in a future period. In contrast, under majority rule, voting “no” is unattractive due to the fear of being excluded from a future coalition. Under both voting rules, one responder becoming less reliable negatively affects the other responder’s willingness to vote “yes”, making efficient agreements increasingly difficult to achieve. The presence of unreliable parties can under majority rule lead to more parties being included in the winning coalition, as demonstrated by an extension of the model. |
| Keywords: | bargaining; majority; unanimity; unreliability; private information |
| Date: | 2025–01–16 |
| URL: | https://d.repec.org/n?u=RePEc:awi:wpaper:0756 |
| By: | Yu Awaya; Hiroki Fukai; Makoto Watanabe |
| Abstract: | We compare Transparency and Privacy in credit markets. A long-lived borrower, who has a risky investment opportunity, seeks loans from a sequence of short-lived lenders. Under Transparency, all the information about the past investment outcomes is shared among the future lenders, which helps the lenders learn the borrower’s type. In contrast, no information is shared under Privacy. We first show that under both Transparency and Privacy, the iterated elimination of dominated strategies leaves unique outcomes. We then show that trade stops earlier under Transparency than under Privacy. A higher social welfare is achieved under Privacy than under Transparency. |
| Keywords: | credit market, transparency, privacy, strategic experimentation |
| JEL: | C73 D83 G20 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11528 |
| By: | Anastasia Antsygina; Ekaterina Kazakova; Alexander Tarasov |
| Abstract: | We develop a model of spatial competition with two heterogeneous in their market access chains, choosing between third-degree price discrimination in their local markets (flexible pricing) and a unified chain-level price (uniform pricing). The markets are interconnected with each other via consumers who commute between them and can make purchases in locations where they do not reside. Our model supports an asymmetric equilibrium, in which the two pricing strategies co-exist: the larger chain uses uniform pricing, while the smaller chain employs flexible pricing. We also find that the chains never choose the pricing strategies that maximize the total consumer surplus. |
| Keywords: | spatial competition, price discrimination, uniform pricing, commuters |
| JEL: | D21 L11 L20 R32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11576 |
| By: | Polachek, Solomon (Binghamton University, New York); Romano, Kenneth (Binghamton University, New York); Tonguc, Ozlem (State University of New York) |
| Abstract: | Do large language models (LLMs)—such as ChatGPT 3.5, ChatGPT 4.0, and Google's Gemini 1.0 Pro—simulate human behavior in the context of the Prisoner's Dilemma (PD) game with varying stake sizes? This paper investigates this question, examining how LLMs navigate scenarios where self-interested behavior of all players results in less preferred outcomes, offering insights into how LLMs might "perceive" human decision-making. Through a replication of Yamagishi et al. (2016) "Study 2, " we analyze LLM responses to different payoff stakes and the influence of stake order on cooperation rates. LLMs demonstrate sensitivity to these factors, and some LLMs mirror human behavior only under very specific circumstances, implying the need for cautious application of LLMs in behavioral research. |
| Keywords: | Prisoner's Dilemma, cooperation, payoff stakes, artificial intelligence |
| JEL: | D01 C72 C90 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17521 |
| By: | Michalis Drouvelis; Zeyu Qiu |
| Abstract: | This paper investigates the effects of induced emotions on leading-by example. Using an online sample of more than 1, 000 participants, we observe behavior in a one-shot sequential voluntary contribution mechanism game where leaders and followers are induced to be either happy or angry. Our findings show that angry leaders contribute less than happy leaders. The same effect is observed when considering followers’ behavior. Crucially, controlling for leaders’ contributions, the mood effects on followers’ behavior disappear, implying that it is sufficient to induce emotions only on leaders in order to affect followers’ behaviour. Our findings further highlight the role of emotions as a causal force, suggesting that negative changes in well-being can bring about adverse effects on team cooperation. |
| Keywords: | induced emotions, anger, happiness, contribution, leading-by-example |
| JEL: | C92 H41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11531 |
| By: | Biais, Bruno (HEC Paris); Gersbach, Hans (ETH Zurich); Rochet, Jean-Charles (University of Toulouse Capitole); von Thadden, Ernst-Ludwig (Universitaet Mannheim); Villeneuve, Stéphane (University of Toulouse 1) |
| Abstract: | This paper analyzes dynamic capital allocation and risk sharing between a principal and many agents, who privately observe their output. The state variables of the mechanism design problem are aggregate capital and the distribution of continuation utilities across agents. This gives rise to a Bellman equation in an infinite dimensional space, which we solve with mean-field techniques. We fully characterize the optimal mechanism and show that the level of risk agents must be exposed to for incentive reasons is decreasing in their initial reservation utility. We extend classical welfare theorems by showing that any incentive-constrained optimal allocation can be implemented as an equilibrium allocation, with appropriate transfers and wealth taxation by the principal. |
| Keywords: | Dynamic contract theory; mechanism design; large economies; allocative efficiency; incentive-compatibility; mean-field games; implementation |
| JEL: | C61 D82 D86 D92 E22 |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:ebg:heccah:1516 |
| By: | J. Atsu Amegashie |
| Abstract: | I study a model of procurement with moral hazard and adverse selection. The procurer is either corrupt or honest and can choose between sole-sourcing and competitive tender. I compare two procurement regulations: no sole-sourcing is allowed (rigid regulation) and sole-sourcing is allowed in an emergency (flexible regulation). Sole-sourcing in an emergency is efficient. Whether there is an emergency that justifies sole-sourcing is the procurer’s private information. A regulator may fire the procurer depending on his belief that the procurer is corrupt. I find the counterintuitive result that if the gain to corruption is big, a flexible procurement regulation may be better than a rigid procurement regulation. If the gain to corruption is sufficiently small, the flexible regulation may be worse or better than the rigid regulation. Interestingly, although the inefficient choice of sole-sourcing is not always penalized, there exists a perfect Bayesian Nash equilibrium in which a corrupt procurer could be given discretion and incentivized to use sole-sourcing efficiently but without an explicit monetary incentive contract. In this case, the flexible regulation is better than the rigid regulation. The results are driven by three sources of inefficiency that are discussed in the paper. |
| Keywords: | competitive tender, procurement, private information, sole sourcing |
| JEL: | D73 D78 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11489 |
| By: | Arnab K. Basu; Nancy H. Chau; Anustup Kundu; Kunal Sen |
| Abstract: | Economic theory predicts that dishonesty thrives in secrecy. Yet, team-based decisions are ubiquitous in public policy-making. How does teamwork influence the tendency for self-dealings when public servants—both honest and corrupt—must work together to make decisions under the veil of within-group secrecy? This paper designs a field experiment guided by a theoretical model of team-level dishonesty, where we define and unpack the drivers of the dishonesty concessions that individuals make in a team setting as a cooperative bargain between team players. |
| Keywords: | Dishonest behaviour, Peer effect, Bargaining, Local government |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2024-87 |
| By: | Mingyuan Ban; Yi Qian; Qiang Gong; Karl Aquino |
| Abstract: | Just and efficient allocations of charity have attracted much academic and media attention. The sources of inefficiency and unjust are important to understand yet understudied. Our study aims to fill this void by directly modelling the victims’ market in a collective reputation framework. By analyzing three types of individuals who signal their victim status with different personalities and incentives, we derive the honest, dishonest and unfunded equilibria as well as the mixed equilibrium where both types of these equilibria could coexist. Our analyses of the social welfare under each equilibrium shed light on key parameters that could potentially serve as policy instruments for improving social welfare. We also reveal that the mechanisms analogous to bank run and lemons market could take place in the victims’ market as much as in other markets. In particular, when charity resources are scarce, more strategic signallers could rush to emit false victim signals and drive the market to the dishonest equilibrium with lower social welfare. The need for screening signallers could drive up the psychological costs of authentic victims to the extent that they voluntarily drop out of the market and suffer alone, resulting in misplaced charity funds and severe deadweight losses. When there is psychological utility associated with cheating for the hedonic signallers, the social welfare is even worse off. |
| JEL: | C7 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33327 |
| By: | Alonso, Ricardo; Zachariadis, Konstantinos E. |
| Abstract: | A regulator who designs a public stress test to avert default of a distressed bank via private investment must account for large investors' private information on the bank's state. We provide conditions for crowding-in (crowding-out) so that the regulator offers an endogenous more (less) informative signal to better-informed investors. We show that crowding-in occurs as long as investors remain responsive to public news and they are sufficiently well informed: the regulator's test perfectly reveals the state as investors' become privately perfectly informed. Investors' value from more precise private signals may come from their effect on the public test's precision. |
| Keywords: | information design; Bayesian persuasion; stress tests; financial disclosure; endogenous public signal |
| JEL: | D83 G21 G28 |
| Date: | 2024–12–31 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:126040 |