GAME THEORY & BARGAINING THEORY eJOURNAL
"Informational Robustness and Solution Concepts"
Cowles Foundation Discussion Paper No. 1973R
DIRK BERGEMANN, Yale University - Cowles Foundation - Department of Economics
STEPHEN MORRIS, Princeton University - Department of Economics
Consider the following "informational robustness" question: what can we say about the set of outcomes that may arise in equilibrium of a Bayesian game if players may observe some additional information? This set of outcomes will correspond to a solution concept that is weaker than equilibrium, with the solution concept depending on what restrictions are imposed on the additional information.
We describe a unified approach encompassing prior informational robustness results, as well as identifying the solution concept that corresponds to no restrictions on the additional information; this version of rationalizability depends only on the support of players’ beliefs and implies novel predictions in classic economic environments of coordination and trading games.
Our results generalize from complete to incomplete information the classical results in Aumann (1974, 1987) and Brandenburger and Dekel (1987) which can be (and were) given informational robustness interpretations. We discuss the relation between informational robustness and "epistemic" foundations of solution concepts.
"Insider's Dilemma: A General Solution in a Repeated Game"
CEIS Working Paper No. 350
CESI BERARDINO, University of Rome, Tor Vergata - Tor Vergata Economics University Foundation
WALTER FERRARESE, University of Rome, Tor Vergata - Department of Economics, Law and Institutions
We show that in an infinitely repeated Cournot game when firms adopt stick and carrot strategies exogenous horizontal mergers are profitable regardless the size of the merged entity. We characterize an equilibrium in which the new entity maximizes its discounted intertemporal profit under the constraint that each outsider produces just enough to be better off after the merger. Once the merger has occurred each insider gains more than each outsider, therefore the insider's dilemma is completely solved.
"The Coalitional Nash Bargaining Solution with Simultaneous Payoff Demands"
FEEM Working Paper No. 067.2015
RICARDO NIEVA, Universidad de Lima
We consider a standard coalitional bargaining game where once a coalition forms it exits as in Okada (2011), however, instead of alternating offers, we have simultaneous payoff demands. We focus in the producer game he studies. Each player is chosen with equal probability. If that is the case, she can choose any coalition she belongs to. However, a coalition can form if an only if payoff demands are feasible as in the Nash (1953) demand game. After smoothing the game (as in Van Damme (1991)), when the noise vanishes, when the discount factor is close to 1, and as in Okada's (2011), the coalitional Nash bargaining solution is the unique stationary subgameperfect equilibrium.
"A Process Analysis of Heuristic Use in Games Under Time Constraints"
LEONIDAS SPILIOPOULOS, Max Planck Society for the Advancement of the Sciences - Max Planck Institute for Human Development
ANDREAS ORTMANN, University of New South Wales - Australian School of Business
LE ZHANG, Curtin University - School of Economics and Finance
We test empirically the strategic counterpart of the ADM (Adaptive Decision Maker) hypothesis (Payne et al., 1993), which states that decision makers adapt to increasing time pressure in predictable ways both in information search and choice behavior. We find our conjecture that tightening time constraints in a strategic context similarly affects players confirmed. Specifically, our subjects are more likely to ignore others' payoffs, thus transforming games effectively into non-strategic decision situations. At least for our selection of strategic interactions this behavior is adaptive in the sense that there were no significant payoff losses resulting from the change in behavior. We use Bayesian latent class modeling to estimate the frequency of heuristic use or types in the subject pool conditional on time constraints. Under time pressure, we observe an increase in the proportion of non-strategic types (particularly Level-1) at the cost of other strategic heuristics including Nash equilibrium choices.
"Stochastic Differential Utility with Preference for Information: Existence, Uniqueness, Concavity, and Utility Gradients"
THOMAS SEIFERLING, University of Kaiserslautern
FRANK THOMAS SEIFRIED, University of Trier
In a fully general semimartingale setting, this article establishes existence, uniqueness, monotonicity, concavity, and a utility gradient inequality for continuous-time recursive utility in the Epstein-Zin parametrization with relative risk aversion and elasticity of intertemporal substitution greater than unity.
"On Highway Problems"
Discussion Papers on Business and Economics, University of Southern Denmark, 13/2015
PETER SUDHÖLTER, University of Southern Denmark - Department of Business and Economics
J.M. ZARZUELO, The University of the Basque Country
A highway problem is a cost sharing problem that arises if the common resource is an ordered set of sections with fixed costs such that each agent demands consecutive sections. We show that the core, the prenucleolus, and the Shapley value on the class of TU games associated with highway problems possess characterizations related to traditional axiomatizations of the solutions on certain classes of games. However, in the formulation of the employed simple and intuitive properties the associated games do not occur. The main axioms for the core and the nucleolus are consistency properties based on the reduced highway problem that arises from the original highway problem by eliminating any agent of a specific type and using her charge to maintain a certain part of her sections. The Shapley value is characterized with the help of individual independence of outside changes, a property that requires the fee of an agent only depending on the highway problem when truncated to the sections she demands. An alternative characterization is based on the new contraction property. Finally it is shown that the games that are associated with generalized highway problems in which agents may demand non-connected parts are the positive cost games, i.e., nonnegative linear combinations of dual unanimity games.
"Paradigm Shift: A Mean Field Game Approach"
Bulletin of Economic Research, Vol. 67, Issue 3, pp. 289-302, 2015
DAMIEN BESANCENOT, Université Paris II Pantheon-Assas
HABIB DOGGUY, University of Paris 13 Nord - Department of Economics and Management
This paper analyses the consequences of young researchers' scientific choice on the dynamics of sciences. We develop a simple two state mean field game model to analyse the competition between two paradigms based on Kuhn's theory of scientific revolution. The dynamics of the model are driven by the scientific choice of young researchers at the beginning of their career. Despite the possibility of multiple equilibria, the model exhibits at least one stable solution in which both para digms coexist. The occurrence of shocks on the parameters may induce the shift from one paradigm to the other. During this shift, researchers' choice is proved to be having a great impact on the evolution of sciences.
"Race to the Top: Credit Rating Bias from Competition"
YUN WANG, Wang Yanan Institute for Studies in Economics (WISE), Xiamen University, University of Pittsburgh
YILAN XU, University of Illinois at Urbana-Champaign, Department of Agricultural and Consumer Economics
Empirical studies have found that competition among credit-rating agencies (CRAs) deteriorates the quality of ratings. We provide a game theoretical framework to analyze CRA competition in the context of conflict of interest. We show that conflict of interest distorts the rating: the rating inflation increases as the publication fee offered by the issuer increases. As the degree of competition increases, the rating deviates even more and investors' utility declines. If the CRAs can publish unsolicited ratings, the rating inflation decreases with the degree of competition, and investors' utility improves over the solicited system. If the CRAs are paid by a third party, all CRAs truthfully report their ratings and investors' utility further improves.
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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