GAME THEORY & BARGAINING THEORY eJOURNAL
"Game Form Misconceptions Do Not Explain the Endowment Effect"
University of Zurich, Department of Economics, Working Paper No. 180
BJÖRN BARTLING, University of Zurich - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute)
FLORIAN ENGL, University of Zurich - Department of Economics
ROBERTO A. WEBER, University of Zurich - Department of Economics, CESifo (Center for Economic Studies and Ifo Institute)
We test the claim that game form misconception among subjects making choices through the Becker-DeGroot-Marschak (BDM) value elicitation procedure provides an explanation for the endowment effect, as suggested by Cason and Plott (forthcoming). We employ a design that allows us to clearly identify whether subjects comprehend the incentive properties of a price-list version of the BDM procedure. We find a robust endowment effect, even among those subjects whose elicited valuations for a known monetary value and whose ability to calculate the payoffs resulting from their choices indicate no misconception of the task. We conclude that game form misconceptions alone are unlikely to account for behavioral patterns like the endowment effect.
"Public Information in Markov Games"
ANDREW KLOOSTERMAN, University of Virginia (UVA)
In a Markov game, players engage in a sequence of games determined by a Markov process. In this setting, this paper investigates the impact of varying the informativeness of public information, as defined by Blackwell 1951 and 1953, pertaining to the games that will be played in future periods. In brief, when a curvature condition on payoffs is satisfied, the finding is that, for any fixed discount factor, the set of strongly symmetric subgame perfect equilibrium payoffs of a Markov game with more informative signals is contained in this set of equilibrium payoffs if the Markov game is played with any less informative signals. The second result shows that larger equilibrium payoffs are possible with less informative signals when the curvature condition fails, but only for some discount factors. The third result strengthens the curvature condition, but generalizes the first result to all subgame perfect equilibrium payoffs. Finally, a collusion application is presented to illustrate the curvature condition.
"Price Dispersion with Ex Ante Homogeneity: A Reassessment of the Diamond Paradox"
JOSE F. TUDON MALDONADO, University of Chicago - Department of Economics
If identical firms set prices in a first stage and identical consumers search sequentially in a second stage, then price dispersion arises in the form of a mixed strategy subgame perfect Nash Equilibrium when the search cost is not prohibitively high. The result does not depend on heterogeneity and bridges the gap between monopoly pricing (Diamond, 1971) and marginal cost pricing. Thus, price dispersion is solely supported by information frictions.
"Competition and Cooperation in a Public Goods Game: A Field Experiment"
Economic Inquiry, Vol. 53, Issue 1, pp. 574-588, 2015
NED AUGENBLICK, University of California, Berkeley - Economic Analysis & Policy Group
JESSE M. CUNHA, Naval Postgraduate School, Naval Postgraduate School
We explore the effects of competitive and cooperative motivations on contributions in a field experiment. A total of 10,000 potential political donors received solicitations referencing past contribution behavior of members of the competing party (competition treatment), the same party (cooperative treatment), or no past contribution information (control). We first theoretically analyze the effect of these treatments on the contribution behavior of agents with different social preferences in a modified intergroup public good (IPG) game. Then, we report the empirical results: Contribution rates in the competitive, cooperative, and control treatments were 1.45%, 1.08%, and 0.78%, respectively. With the exception of one large contribution, the distribution of contributions in the competitive treatment first order stochastically dominates that of the cooperative treatment. Qualitatively, it appears that the cooperative treatment induced more contributions around the common monetary reference point, while the competitive treatment led to more contributions at twice this amount. These results suggest that eliciting competitive rather than cooperative motivations can lead to higher contributions in IPG settings.
"Information Value Under Demand Uncertainty and Endogenous Market Leadership"
Economic Inquiry, Vol. 53, Issue 1, pp. 589-603, 2015
SCOTT M. GILPATRIC, University of Tennessee
YOUPING LI, East China University of Science and Technology (ECUST)
In an oligopoly model with firms choosing to produce in one of two periods, we identify the circumstance under which a firm’s having early information regarding stochastic demand results in market leadership. High demand volatility leads to Stackelberg competition with the information-advantaged firm leading. In the N-firm case an equilibrium with multiple leaders and multiple followers emerges endogenously. In a duopoly information acquisition game we identify conditions that determine whether neither, one, or both firms will pay to acquire early information and note that one firm’s obtaining early information may generate a positive externality benefitting its competitor. Both symmetric and asymmetric outcomes are possible and Stackelberg market leadership may occur in equilibrium, but only when firms have different costs of information. Our finding that an information advantage may convey leadership which then affects the value of information to the players applies to other settings exhibiting first-mover advantage such as certain public good provision games.
"Incomplete Information Strengthens the Effectiveness of Social Approval"
Economic Inquiry, Vol. 53, Issue 1, pp. 557-573, 2015
MATTHIAS GREIFF, University of Giessen - Department of Economics
FABIAN PAETZEL, University of Bremen - Faculty of Business Studies and Economics
We present a theoretical model of a public good game in which the expression of social approval induces pro-social behavior. Using a laboratory experiment with earned heterogeneous endowments, we test our model. The main hypothesis is that the expression of social approval increases cooperative behavior even if reputation building is impossible. We vary the information available and investigate how this affects the expression of social approval and individual contributions. The expression of social approval significantly increases contributions. However, the increase is smaller if additional information is provided, suggesting that social approval is more effective if subjects receive a noisy signal about others’ contributions.
About this eJournal
This eJournal distributes working and accepted paper abstracts of empirical and theoretical papers on game theory, defined as the study of the strategic interaction among rational agents in competitive and cooperative environments, and bargaining theory, defined as a situation in which two or more players have a common interest to co-operate, but have conflicting interests over exactly how to co-operate. The topics in this eJournal include all of the subjects in Section C7 of the JEL classification system.
Editor: Victor Ricciardi, Goucher College
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