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on Game Theory |
| By: | Bone, John (Department of Economics, University of York,); Drouvelis, Michalis (Department of Economics, University of Birmingham); Gürgüç, Zeynep (School of Business and Management, Queen Mary University of London); Ray, Indrajit (Cardiff Business School) |
| Abstract: | We consider a specific parametric version of Chicken and two different correlation devices, public and private, with the same expected payoffs in equilibrium, which is also the best correlated equilibrium payoff for the game. Despite our choices of parameters (payoffs) in the game, in an experiment with these two correlated equilibria, we find that the rate of “following recommendations†vary significantly within and between two treatments using these devices. |
| Keywords: | Recommendation, Correlated equilibrium, Public device |
| JEL: | C72 C92 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/27 |
| By: | Michael Finus (University of Graz, Austria); Francesco Furini (University of Hamburg, Germany) |
| Abstract: | We analyze a two-stage coalition formation game in which the provision of the global public good is not only associated with variable costs but also with fixed costs. We consider the assumptions that signatories share or do not share fixed costs. We show that fixed costs may imply corner solutions for equilibrium public good provision levels and generate several different coalition formation scenarios. Some scenarios are a game changer in that stable agreements and global welfare gains from cooperation are large. That is, the well-known conclusion about the “paradox of cooperation†may break down in the light of fixed costs. |
| Keywords: | Global Public Good Provision, International Treaties, Coalition Stability, Fixed Costs. |
| JEL: | C72 D62 H41 H87 Q50 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2024-18 |
| By: | Luca Colombo (ESC [Rennes] - ESC Rennes School of Business); Paola Labrecciosa; Agnieszka Rusinowska (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We take a novel approach based on differential games to the study of criminal networks. We extend the static crime network game (Ballester et al., 2006, 2010) to a dynamic setting where criminal activities negatively impact the accumulation of total wealth in the economy. We derive a Markov Feedback Equilibrium and show that, unlike in the static crime network game, the vector of equilibrium crime rates is not necessarily proportional to the vector of Bonacich centralities. Next, we conduct a comparative dynamic analysis with respect to the network size, the network density, and the marginal expected punishment, finding results in contrast with those arising in the static crime network game. We also shed light on a novel issue in the network theory literature, i.e., the existence of a voracity effect. Finally, we study the problem of identifying the optimal target in the population of criminals when the planner's objective is to minimize aggregate crime at each point in time. Our analysis shows that the key player in the dynamic and the static setting may differ, and that the key player in the dynamic setting may change over time. |
| Keywords: | Differential games, Markov equilibrium, Criminal networks, Bonacich centrality, Key player |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:hal-04850675 |
| By: | Takeshi Nishimura; Nobuyuki Hanaki |
| Abstract: | The paradoxical full-surplus-extraction (FE) result, which can impair the mechanism design paradigm, is a long-standing concern in the literature. We tackle this problem by experimentally testing the performance of an FE auction, which is a second-price (2P) auction with lotteries. In the FE treatment, overbid amounts given entry increased and entry rates decreased through rounds, thus FE failed. By contrast, most subjects learned value bidding in the 2P treatment. To identify the causes of failure in the FE, we take an evolutionary-game approach. The FE auction with risk-neutral bidders has exactly two symmetric equilibria, either value bidding with full or partial entry, and only the partial-entry equilibrium is (evolutionarily or asymptotically) stable. Replicator dynamics with vanishing trends well explain observed dynamic bidding patterns. Together, these findings suggest that the FE outcome is not robust to trial-and-error learning by bidders. |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1266 |
| By: | Vitali Gretschko; Jasmina Simon |
| Abstract: | We examine a setting of independent private value auctions where bidders can covertly acquire gradual information about their valuations. We demonstrate that a dynamic pivot mechanism implements the first-best information acquisition and allocation rule. We apply our results to a commonly used model of auctions with information acquisition. The bidders are symmetric and information acquisition costs are moderate. Our analysis shows that the Dutch auction achieves near‐efficiency. That is, the welfare loss is bounded by the information acquisition cost of a single bidder. In contrast, the English auction may result in greater welfare losses. |
| Keywords: | Information acquisition, dynamic auctions, dynamic pivot mechanism |
| JEL: | D44 D82 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_616 |
| By: | Neil A. Chriss |
| Abstract: | This paper examines strategic trading under incomplete information, where firms lack full knowledge of key aspects of their competitors' trading strategies such as target sizes and market impact models. We extend previous work on competitive trading equilibria by incorporating uncertainty through the framework of Bayesian games. This allows us to analyze scenarios where firms have diverse beliefs about market conditions and each other's strategies. We derive optimal trading strategies in this setting and demonstrate how uncertainty significantly impacts these strategies compared to the complete information case. Furthermore, we introduce a novel approach to model the presence of non-strategic traders, even when strategic firms disagree on their characteristics. Our analysis reveals the complex interplay of beliefs and strategic adjustments required in such an environment. Finally, we discuss limitations of the current model, including the reliance on linear market impact and the lack of dynamic strategy adjustments, outlining directions for future research. |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.01241 |
| By: | Selcuk, Cemil (Cardiff Business School) |
| Abstract: | When faced with budget-constrained bidders, all-pay auctions revenue-dominate standard auctions (first and second-price), which, in a competitive market, gives an edge to the all-pay format. An equilibrium in which sellers compete with standard auctions fails to exist if the all-pay format is available. Assuming the budget is not severely limited, in the unique symmetric equilibrium sellers compete with all-pay auctions. |
| Keywords: | All-pay Auctions, Budget Constraints, Directed Search, Competing Auctions |
| JEL: | D4 D81 D83 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/26 |
| By: | Dasgupta, Indraneel (Indian Statistical Institute); Gupta, Dhritiman (Indian Institute of Management) |
| Abstract: | We consider rent-seeking contests between and within two equal-sized groups. Each group adopts one of three sequences: first internal then external contest, first external then internal contest, and simultaneous internal and external contests. Groups cannot unilaterally postpone a contest without losing. We rank the nine possible combinations according to rent-seeking expenditure and expected utilities. Rent-seeking is maximum when both internal contests either precede, or occur simultaneously with, the external contest. These forms have identical, Pareto-dominated, welfare consequences. Among contest forms which offer both groups a positive win probability, rent-seeking is minimized if the between-group contest precedes both within-group contests; this also induces Pareto-efficiency. When the groups independently choose the contest sequence, the unique Nash equilibrium involves simultaneous occurrence of all contests. Results due to Warneryd (1998) and Amegashie (1999) fall out. When a multi-member group battles a single-member one, unity against the common enemy (an efficient sequence choice) can be sustained if the larger group can resolve its internal coordination problem. With unequal groups and symmetric contest sequencing, the one-tier contest form may be Pareto-efficient, despite generating greater rent-seeking than all symmetric two-tier forms. |
| Keywords: | Tullock contest, internal and external rent-seeking, rent dissipation, contest design, war |
| JEL: | D70 D72 D74 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17556 |
| By: | Nobuyuki Hanaki; Yuta Takahashi |
| Abstract: | We present and conduct a novel experiment on a multi-period beauty contest game. Leveraging the new multi-period feature, we propose a new methodology to test the forward-lookingness of expectations and explore how expectations are formed in our dynamic environment. By studying how expectations are revised over time, we provide new evidence for forward-looking expectation formation. Moreover, we uncover a new effect of strategic environment: only when the game exhibits strategic complementarity do participants use extrapolation and expect increasingly higher prices in the future. This finding implies that the mode of expectation formation is endogenous to the economic environment of the participants. |
| Date: | 2023–09 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1213rr |
| By: | Masaaki Fujii (Quantitative Finance Course, Graduate School of Economics, The University of Tokyo.); Masashi Sekine (Quantitative Finance Course, Graduate School of Economics, The University of Tokyo.) |
| Abstract: | In this paper, using the mean-field game theory, we study a problem of equilibrium price formation among many investors with exponential utility in the presence of liabilities unspanned by the security prices. The investors are heterogeneous in their initial wealth, risk-averseness parameter, as well as stochastic liability at the terminal time. We characterize the equilibrium risk-premium process of the risky stocks in terms of the solution to a novel mean-field backward stochastic differential equation (BSDE), whose driver has quadratic growth both in the stochastic integrands and in their conditional expectations. We prove the existence of a solution to the mean-field BSDE under several conditions and show that the resultant risk-premium process actually clears the market in the large population limit. |
| Date: | 2023–10 |
| URL: | https://d.repec.org/n?u=RePEc:cfi:fseres:cf594 |
| By: | Molina, Hugo (Université Paris-Saclay, INRAE); Wang, Ao (University of Warwick) |
| Abstract: | We develop an empirical framework to analyze vertical relationships with manufacturer-retailer bargaining. Our key innovation is the introduction of a novel Nash-in-Nash bargaining model that incorporates uncertainty in retailers’ pricing responses to wholesale prices. This model extends existing Nash-in-Nash frameworks by relaxing assumptions about the timing of wholesale and retail price setting. We show that our model can be microfounded by a two-stage noncooperative game with delegated negotiations. We propose a two-step strategy that separably identifies bargaining and responsiveness parameters and implies a Generalized Method of Moments estimation procedure. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1534 |
| By: | Daeyoung Jeong; Tongseok Lim; Euncheol Shin |
| Abstract: | In various contexts, such as learning, social distancing behavior, and financial contagion, economic agents' decisions are interdependent and can be represented as a network. This paper investigates how a decision maker (DM) can design an optimal intervention while addressing uncertainty in the network structure. The DM's problem is modeled as a zero-sum game against an adversarial player, referred to as "Nature, " whose objective is to disrupt the DM's goals by reconfiguring the network into its most disadvantageous state. Using the principle of duality, we derive the DM's unique robust intervention strategy and identify the corresponding unique worst-case network structure determined by Nature. This framework provides insights into robust decision-making under network uncertainty, balancing the DM's objectives with Nature's adversarial actions. Moreover, we explore the costs of robustness and highlight the significance of higher-order uncertainties. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2501.00235 |
| By: | Jeanne Hagenbach (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique, CEPR - Center for Economic Policy Research, WZB - Wissenschaftszentrum Berlin für Sozialforschung); Charlotte Saucet (UP1 UFR02 - Université Paris 1 Panthéon-Sorbonne - École d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne, CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | We experimentally study how individuals read strategically transmitted information when they have preferences over what they will learn. Subjects play disclosure games in which Receivers should interpret messages skeptically. We vary whether the state that Senders communicate about is ego-relevant or neutral for Receivers, and whether skeptical beliefs are aligned or not with what Receivers prefer believing. Compared to neutral settings, skepticism is significantly lower when it is self-threatening, and not enhanced when it is self-serving. These results shed light on a new channel that individuals can use to protect their beliefs in communication situations: they exercise skepticism in a motivated way, that is, in a way that depends on the desirability of the conclusions that skeptical inferences lead to. We propose two behavioural models that can generate motivated skepticism. In one model, the Receiver freely manipulates his beliefs after having made skeptical inferences. In the other, the Receiver reasons about evidence in steps and the depth of his reasoning is motivated. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:hal-04821601 |
| By: | Junichiro Ishida; Wing Suen |
| Abstract: | We study a signaling game where agents signal their type by choosing when to quit pursuing an uncertain project. High types observe news about project quality and quit when bad news arrives. This creates opportunities for low types who do not observe any news to mimic high types by quitting strategically. In equilibrium, there is a mimicking phase of time when low types quit continuously. The reputation dynamics may exhibit non-monotonicity, with agents who quit either very early or very late carrying a higher reputation than do agents who quit near the optimal time for low types. Our analysis offers a unifying explanation for how and when both early and late quitting can enhance reputation and suggests novel welfare and policy implications. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1270 |
| By: | Rustagi, Devesh (University of Warwick); Schief, Matthias (OECD) |
| Abstract: | Does anticipation of discrimination (beliefs individuals hold about the behavior of others towards them) undermine cooperation? We develop a new design to isolate the role of anticipation from confounding motives. Using the trust game, we measure anticipation as the double difference between the amount transferred to outgroup vs. ingroup trustees when the trustor’s own identity is revealed vs. concealed. Using the context of affective polarization, we find that anticipation of discrimination undermines cooperation by the same magnitude as taste-based and statistical discrimination. However, anticipation of discrimination is misperceived. Our method can be used to study anticipation of discrimination across societal divisions. JEL Codes: C91 ; C93 ; J15 ; D72 ; Z13 |
| Keywords: | discrimination ; anticipation ; misperception ; trust game ; cooperation dilemma ; affective polarization ; United Kingdom |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1535 |
| By: | Roberto Galbiati (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); Emeric Henry (ECON - Département d'économie (Sciences Po) - Sciences Po - Sciences Po - CNRS - Centre National de la Recherche Scientifique); 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 nationale des ponts et chaussées - 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. Enforcement can then potentially have a negative dynamic impact on cooperation when it prevents learning. 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. |
| Keywords: | Enforcement, social values, cooperation, learning, spillovers, repeated games, experiments |
| Date: | 2024–03 |
| URL: | https://d.repec.org/n?u=RePEc:hal:cesptp:halshs-04800439 |
| By: | Hikmet Gunay; Xin Meng; Victor Perez |
| Abstract: | In a second-price sequential auction with both global and local bidders, we explore the optimal order for selling heterogeneous goods to maximize efficiency or revenue. Our findings indicate that selling the good with very small variance (almost-zero variance) first yields higher revenue, while selling it second results in an efficient outcome with probability almost 1. We link the optimal selling order to the likelihood of various inefficient outcomes. Specifically, selling the good with small variance first increases the probability of ex-post loss for the global bidder, boosting the seller’s revenue at the expense of overall social welfare. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1271 |
| By: | Dirk Bergemann (Yale University); Marek Bojko (Yale University); Paul DŸtting (Google Research); Renato Paes Leme (Google Research); Haifeng Xu (University of Chicago and Google Research); Song Zuo (Google Research) |
| Abstract: | We study mechanism design when agents hold private information about both their preferences and a common payoff-relevant state. We show that standard message-driven mechanisms cannot implement socially efficient allocations when agents have multidimensional types, even under favorable conditions. To overcome this limitation, we propose data-driven mechanisms that leverage additional post-allocation information, modeled as an estimator of the pay-off relevant state. Our data-driven mechanisms extend the classic Vickrey-Clarke-Groves class. We show that they achieve exact implementation in posterior equilibrium when the state is either fully revealed or the utility is linear in an unbiased estimator. We also show that they achieve approximate implementation with a consistent estimator, converging to exact implementation as the estimator converges, and present bounds on the convergence rate. We demonstrate applications to digital advertising auctions and large language model (llm) - based mechanisms, where user engagement naturally reveals relevant information. |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2418 |
| By: | Panova, Elena |
| Abstract: | This paper extends reputational cheap-talk model to study the effect of competition in the media on quality of news. We find that competition helps sustaining informative reporting when it covers is-sues on which the follow-up quality assessment is likely to be possible, such as various forecasts. However, it increases the elasticity of demand and thereby creates the incentives to confirm the common priors on controversial issues, such as politics. |
| Keywords: | quality of news; competition; reputational cheap-talk |
| JEL: | L82 L10 D82 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129948 |
| By: | Ambec, Stefan; Coria, Jessica |
| Abstract: | Public consultations are widely used in regulatory processes, allowing stakeholders to present their viewpoints despite their inherent biases. Some stakeholders, such as firms, are known to be pro-business, while others, such as environmental NGOs, are pro-environment. We develop a framework to analyze how a regulator should process information provided by biased stakeholders. We distinguish between stakeholders whose biases are high and known and those whose biases are small but unknown, such as national authorities. We show that the regulator should follow the advice that runs counter to a stakeholder’s typical bias, i.e., to regulate if firms so advise, and not to regulate if environmental organizations so advise. Without such advice, she should prioritize the comments provided by stakeholders with smaller but unknown bias. Next, we contrast our theoretical results with the regulation of chemicals in the European Union. In line with our theory, we find that support for regulation has a strong and significant impact on the decision to regulate when the support comes from firms but not when it comes from NGOs and environmental agencies. We also find that national authorities have a stronger influence than other stakeholders in the regulation decision, both by the number of comments and the relative support. |
| Keywords: | Environmental policy; incomplete information; cheap talk; biased expertise;; private politics; chemicals, REACH |
| Date: | 2024–12–20 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130037 |
| By: | Daniel Rondeau (University of Victoria); Christian A. Vossler (Department of Economics, University of Tennessee) |
| Abstract: | Answers to valuation questions in stated preference surveys can be analyzed as economic decisions only if respondents believe their choice(s) are consequential (i.e., can affect their welfare). The empirical evidence we review indicates that the information content of surveys can significantly influence consequentiality beliefs, and controlling for beliefs can impact welfare estimates and improve validity. The review also uncovers several opportunities to improve upon current practices. First, most surveys do not deploy incentive compatible mechanisms that provide respondents with the correct incentives to truthfully reveal their preferences. Second, existing consequentiality measures do not fully capture consequentiality and are challenging to interpret. Finally, studies do not generally measure or control for other beliefs required to ensure that estimated value are consistent with economic theory. Hence, we provide a theoretical framework that links incentive compatibility conditions to a respondent’s beliefs about these conditions. This motivates a theory-driven proposal to improve belief elicitation and foster greater validity of survey results. |
| Keywords: | Stated Preferences; Consequentiality; Incentive Compatibility; Mechanism Design; Belief Elicitation; Validity |
| JEL: | H21 H23 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ten:wpaper:2024-02_1 |