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on Game Theory |
| By: | Pedro Dal Bó; Guillaume Fréchette |
| Abstract: | An extensive experimental literature has documented miscoordination in establishing cooperative relationships when they can be supported in indefinitely repeated games: some people systematically try to cooperate, while others do not. The literature has had little success in finding personal characteristics that correlate systematically with these behaviors. We show that subjects who play the risky but efficient action in a simple coordination game (i.e., play stag in a stag hunt game) are significantly more likely to cooperate in indefinitely repeated games. This suggests that subjects who are less susceptible to strategic uncertainty are more likely to attempt to establish cooperative relationships. |
| JEL: | C7 C9 |
| Date: | 2025–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33980 |
| By: | San Román, Diego |
| Abstract: | Research in anthropology and neuroscience has shown that people have a cognitive limit on the number of stable relationships they can maintain. In this spirit, we consider a network formation game in which the cost of link formation is increasing in the agent's degree. In this class of games, as opposed to commonly studied games with a fixed cost of link formation, the order in which agents form the network (order of play) determines its final structure. In particular, we find that only certain orders of play can explain the formation of circle and complete bipartite networks. We also find that there is multiplicity of equilibria only when marginal costs of link formation are intermediate. Our results show as well that some orders of play are better than others for predicting the equilibrium structure when it is not unique, and that playing last is usually harmful. |
| Keywords: | sequential network formation, pairwise stability, order of play, costs of link formation increasing in degree |
| JEL: | C72 D85 |
| Date: | 2025–07–10 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125309 |
| By: | Anand Chopra; Malachy James Gavan; Antonio Penta |
| Abstract: | Safe Implementation (Gavan and Penta, 2025) combines standard implementation with the requirement that the implementing mechanism is such that, if up to k agents deviate from the relevant solution concept, the outcomes that are induced are still 'acceptable' at every state of the world. In this paper, we study Safe Implementation of social choice correspondences in mixed Nash Equilibrium. We identify a condition, Set-Comonotonicity, which is both necessary and (under mild domain restrictions) almost sufficient for this implementation notion. |
| Keywords: | implementation, mechanism design, mixed implementation, robustness, safe implementation, Set-Comonotonicity |
| JEL: | C72 D82 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1497 |
| By: | Mathieu Lefebvre (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Gisèle Umbhauer (BETA - Bureau d'Économie Théorique et Appliquée - AgroParisTech - UNISTRA - Université de Strasbourg - Université de Haute-Alsace (UHA) - Université de Haute-Alsace (UHA) Mulhouse - Colmar - UL - Université de Lorraine - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | This paper presents a classroom experiment on the Traveler's Dilemma in order to show the impact of the common knowledge of the value of the luggage. This value becomes a focal point that canalizes the behavior of the students. This leads us to commenting on the impact of such focal points both on the reasoning of the players and on the structure of the game. We construct a new game which models this impact and we study its Nash equilibrium. |
| Abstract: | Cet article a pour objectif, dans le cadre d'une expérience en classe sur le dilemme du voyageur, de montrer l'impact comportemental de la connaissance commune de la valeur des bagages égarés. Cette valeur agit comme un point focal qui canalise le comportement des étudiants dans le rôle des voyageurs. Nous commentons son impact sur le raisonnement des étudiants et sur la structure du jeu. Puis nous construisons un nouveau jeu qui modèle cet impact et nous en analysons l'équilibre de Nash. |
| Keywords: | Traveler's dilemma, Nash equilibrium, Focal point, Classroom experiment, Honesty, Dilemme du voyageur, Equilibre de Nash, Point focal, Expérience en classe, Honnêteté |
| Date: | 2024–02–05 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-05127074 |
| By: | Steven Kivinen (University of Graz, Austria); Christoph Kuzmics (University of Graz, Austria) |
| Abstract: | An informed Advisor and an uninformed Decision-Maker, with conflicting interests, engage in repeated cheap talk communication in always new decision problems. While the Decision-Maker's optimal payoff is attainable in some subgame-perfect equilibrium, no payoff profile close to the Decision-Maker's optimal one is immune to renegotiation. Pareto efficient renegotiation-proof equilibria entail a compromise between the Advisor and the Decision-Maker. This could involve the Advisor being truthful and the Decision-Maker not fully utilizing this information to their advantage, or the Advisor exaggerating the truth and the Decision-Maker pretending to believe them. |
| Keywords: | cheap talk, renegotiation, information transmission, persuasion |
| JEL: | C72 C73 D83 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2025-11 |
| By: | Matias Nunez; Danilo Coelho; Carlos Alós-Ferrera; Salvador Barberà |
| Abstract: | Arbitrators for high-stakes conflicts, as well as judges and other officials, are of- ten appointed through structured bargaining protocols. The theoretical literature models these protocols as extensive-form games with perfect information, evaluating them based on the merits of their subgame-perfect equilibria, such as efficiency. However, decision makers often fail to implement backward induction and exhibit other-regarding preferences. In a large experiment, we compare two prominent protocols and show that those concerns affect outcomes. Bargaining protocols whose equilibria are unfair (in a maximin sense) fare poorly compared to those favoring compromises. However, lengthy protocols face limitations because they elicit non-equilibrium behavior. |
| Keywords: | bargaining, fairness, backward induction, Appointment rules |
| JEL: | C78 C92 D63 D74 D82 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1490 |
| By: | Hernán Vallejo (Universidad de los Andes) |
| Abstract: | This article presents a simplified model to compile and synthesize in a formal - and hopefully clear- way, some of the most important trade policy results of the literature, in what can be thought of as a Fundamental Theorem of Trade Policy. It shows that ceteris paribus, when other externalities and other distortions are not considered, optimal import tariffs and optimal taxes on exports are: positive for large countries; “beggar thy neighbor” and “beggar thy world” policies when applied by a large country; and examples of a dominant strategy for each large country, a Nash Equilibrium in trade policy and a Prisoner´s Dilemma, when applied simultaneously by several large countries. Import and export subsidies are shown to be “beggar thyself”, “benefit thy neighbor”, and “beggar thy world” policies. Optimal import tariffs and export taxes are zero for small countries. Consequently, retaliation by small countries when large countries use tariffs and/or export taxes exacerbates their own welfare losses. Enforceable and verifiable commitment technologies, through a multilateral institution such as a credible WTO, are required to avoid undesired outcomes. |
| Keywords: | Optimal Tariff, Optimal Export Tax, Beggar Thyself, Beggar Thy Neighbor, Benefit Thy Neighbor, Begga |
| JEL: | F13 F15 |
| Date: | 2025–07–15 |
| URL: | https://d.repec.org/n?u=RePEc:col:000089:021406 |
| By: | Li, Hao; Wang, Gaowang |
| Abstract: | We develop a model economy with active financial markets in which a policymaker's adoption of a gradualistic approach constitutes a Bayesian Nash equilibrium. In our model, the ex ante policy proposal influences the supply side of the economy, while the ex post policy action affects the demand side and shapes market equilibrium. When choosing policies, the policymaker internalizes the impact of her decisions on the precision of the firm-value signal. Moreover, financial markets provide a price signal that informs the government. The policymaker learns about the productivity shocks not only from firm-value performance signals but also from financial market prices. Access to information through both channels creates strong incentives for the policymaker to adopt a gradualistic approach in a time-consistent manner. Smaller policy steps yield more precise information about the productivity shock. These results hold robustly for both exogenous and endogenous information models. |
| Keywords: | gradualistic approach; financial markets; information; learning; optimal policy |
| JEL: | D83 G10 O2 |
| Date: | 2025–05–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125158 |
| By: | Robert P. Gilles (The Queen's University of Belfast); Rene van den Brink (Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | We explore a broad class of values for cooperative games in characteristic function form, known as compromise values. These values efficiently allocate payoffs by linearly combining well-specified upper and lower bounds on payoffs. We identify subclasses of games that admit non-trivial efficient allocations within the considered bounds, which we call bound-balanced games. Subsequently, we define the associated compromise value. We also provide an axiomatisation of this class of compromise values using a combination of the minimal-rights property and a variant of restricted proportionality. We construct and axiomatise various well-known and new compromise values based on these methods, including the ð œ -, the 𠜒-, the Gately, the CIS-, the PANSC-, the EANSC- and the new KM-values. We conclude that this approach establishes a common foundation for a wide range of different values. |
| JEL: | C71 |
| Date: | 2025–03–14 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250017 |
| By: | Darija Barak; Miguel Costa-Gomes |
| Abstract: | As Large Language Models (LLMs) integrate into our social and economic interactions, we need to deepen our understanding of how humans respond to LLMs opponents in strategic settings. We present the results of the first controlled monetarily-incentivised laboratory experiment looking at differences in human behaviour in a multi-player p-beauty contest against other humans and LLMs. We use a within-subject design in order to compare behaviour at the individual level. We show that, in this environment, human subjects choose significantly lower numbers when playing against LLMs than humans, which is mainly driven by the increased prevalence of `zero' Nash-equilibrium choices. This shift is mainly driven by subjects with high strategic reasoning ability. Subjects who play the zero Nash-equilibrium choice motivate their strategy by appealing to perceived LLM's reasoning ability and, unexpectedly, propensity towards cooperation. Our findings provide foundational insights into the multi-player human-LLM interaction in simultaneous choice games, uncover heterogeneities in both subjects' behaviour and beliefs about LLM's play when playing against them, and suggest important implications for mechanism design in mixed human-LLM systems. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.11011 |
| By: | Sindri Engilbertsson (University of Amsterdam); Sander Onderstal (University of Amsterdam and Tinbergen Institute); Leonard Treuren (KU Leuven) |
| Abstract: | Competition authorities impose substantial penalties on firms engaging in illegal price-fixing. We examine how basing cartel fines on either revenue, profit, or price overcharge influences cartel and market prices, as well as cartel incidence and stability. In an infinitely repeated Bertrand oligopoly game, we show that revenue-based fines incentivize firms to charge prices above the monopoly price, whereas only overcharge-based fines encourage prices below the monopoly price. Cartels are stable for a smaller range of discount factors when fines are based on overcharges rather than other bases. We test these predictions in a laboratory experiment where subjects can form cartels, which allows them to discuss pricing at the risk of being detected and fined. By equalizing expected fines across treatments, we isolate the effect of the fine's base. We find that market prices are lowest under overcharge-based fines and highest under revenue-based fines. Variation in market prices across treatments is fully driven by cartel prices. While these results align with the theoretical predictions, cartel incidence remains unchanged across regimes. Our results suggest competition authorities could improve enforcement by shifting from revenue-based fines to profit- or overcharge-based fines. |
| Date: | 2025–02–21 |
| URL: | https://d.repec.org/n?u=RePEc:tin:wpaper:20250012 |
| By: | Siddharth Prasad; Maria-Florina Balcan; Tuomas Sandholm |
| Abstract: | Core-selecting combinatorial auctions are popular auction designs that constrain prices to eliminate the incentive for any group of bidders -- with the seller -- to renegotiate for a better deal. They help overcome the low-revenue issues of classical combinatorial auctions. We introduce a new class of core-selecting combinatorial auctions that leverage bidder information available to the auction designer. We model such information through constraints on the joint type space of the bidders -- these are constraints on bidders' private valuations that are known to hold by the auction designer before bids are elicited. First, we show that type space information can overcome the well-known impossibility of incentive-compatible core-selecting combinatorial auctions. We present a revised and generalized version of that impossibility result that depends on how much information is conveyed by the type spaces. We then devise a new family of core-selecting combinatorial auctions and show that they minimize the sum of bidders' incentives to deviate from truthful bidding. We develop new constraint generation techniques -- and build upon existing quadratic programming techniques -- to compute core prices, and conduct experiments to evaluate the incentive, revenue, fairness, and computational merits of our new auctions. Our new core-selecting auctions directly improve upon existing designs that have been used in many high-stakes auctions around the world. We envision that they will be a useful addition to any auction designer's toolkit. |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2505.13680 |
| By: | Barigozzi, Francesca; Cremer, Helmuth; Canta, Chiara |
| Abstract: | This paper studies how firms’ ownership choices and workers’ intrinsic motivation jointly shape service quality and market outcomes in labor-intensive, mission-driven sectors. Two organizations first choose whether to operate as standard for-profit or as mission-oriented firms, and then compete in both the labor and the user markets. Mission-oriented firms have higher unit costs but attract better-motivated workers. Service quality is endogenously determined through the sorting of intrinsically motivated workers and depends on the firm’s ownership type. We show that all market structures—standard, mission-oriented, or mixed— can arise in equilibrium, and that mixed structures can be Pareto superior by efficiently allocating the most motivated workers to the mission-oriented firm while preserving the cost advantage of the other firm. While equilibrium outcomes generally diverge from the social optimum due to externalities and lack of coordination, they are both driven by the trade-off between cost-efficiency and motivation. The model helps explain the coexistence of heterogeneous ownership structures observed in some sectors—such as the nursing homes sector—and identifies conditions under which such diversity is welfare-enhancing. |
| Keywords: | mission-driven sectors; mission-oriented firms; workers’ motivation; endogenous; market structure; welfare. |
| JEL: | J21 L13 L31 |
| Date: | 2025–07–18 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130749 |