Games under Ambiguous Payoffs and Optimistic Attitudes

In real-life games, the consequence or payoff of a strategy profile and a player's belief about the consequence of a strategy profile are often ambiguous, and players may have different optimistic attitudes with respect to a strategy profile. To handle this problem, this paper proposes a decision rule using the Hurwicz criterion and Dempster-Shafer theory. Based on this rule, we introduce a new kind of games, called ambiguous games, and propose a solution concept that is appropriate for this sort of games. Moreover, we also study how the beliefs regarding possible payoffs and optimistic attitudes may affect the solutions of such a game. To illustrate our model, we provide an analysis of a scenario concerning allocating resource of defending and attacking in military contexts

The Evolutionary Stability of Optimism, Pessimism and Complete Ignorance

We provide an evolutionary foundation to evidence that in some situations humans maintain optimistic or pessimistic attitudes towards uncertainty and are ignorant to relevant aspects of the environment. Players in strategic games face Knightian uncertainty about opponents’ actions and maximize individually their Choquet expected utility. Our Choquet expected utility model allows for both an optimistic or pessimistic attitude towards uncertainty as well as ignorance to strategic dependencies. An optimist (resp. pessimist) overweights good (resp. bad) outcomes. A complete ignorant never reacts to opponents’ change of actions. With qualifications we show that optimistic (resp. pessimistic) complete ignorance is evolutionary stable / yields a strategic advantage in submodular (resp. supermodular) games with aggregate externalities. Moreover, this evolutionary stable preference leads to Walrasian behavior in those classes of games

Are the Treasures of Game Theory Ambiguous?

Goeree & Holt (2001) observe that, for some parameter values, Nash equilibrium provides good predictions for actual behaviour in experiments. For other payoff parameters, however, actual behaviour deviates consistently from that predicted by Nash equilibria. They attribute the robust deviations from Nash equilibrium to actual players’ considering not only marginal gains and losses but also total pay-offs. In this paper, we show that optimistic and pessimistic attitudes towards strategic ambiguity may induce such behaviour.

Affective Portfolio Analysis: Risk, Ambiguity and (IR)rationality

Ambiguous assets are characterized as assets where objective and subjective probabilities of tomorrow’s asset-returns are ill-defined or may not exist, e.g., bitcoin, volatility indices or any IPO. Investors may choose to diversify their portfolios of fiat money, stocks and bonds by investing in ambiguous assets, a fourth asset class, to hedge the uncertainties of future returns that are not risks. (IR)rational probabilities are computable alternative descriptions of the distribution of returns for ambiguous assets. (IR)rational probabilities can be used to define an investor’s (IR)rational expected utility function in the class of non-expected utilities. Investment advisors use revealed preference analysis to elicit the investor’s composite preferences for risk tolerance, ambiguity aversion and optimism. Investors rationalize (IR)rational expected utilities over portfolios of fiat money, stocks, bonds and ambiguous assets by choosing their optimal portfolio investments with (IR)rational expected utilities. Subsequently, investors can hedge future losses of their optimal portfolios by purchasing minimum-cost portfolio insurance

Social Exclusion, Ambiguity and (IR)rationality

This working paper extends the methodology of non-smooth affective portfolio theory (APT) for eliciting (IR)rational preferences of investors endowed with continuous quasilinear utility functions, where assets are portfolios of risky and ambiguous state-contingent claims. The elicitation is a solution of the affective Afriat inequalities;see technical appendix 1. Solving the smooth affective Afriat inequalities is Np-hard; see technical appendices 2, 3, and 4. The proposed extension is a methodology for the elicitation of (IR)rational preferences of individuals endowed with random continuous quasilinear utility functions defined over finite subsets of discrete social goods as a refutable model of social exclusion in the incomplete markets for social goods; see technical appendices 5 and 6. The methods of elicitation are generalized estimating equations (GEE) and alternating logistic regression (ALR); see technical appendices; 7 and 8

Five Essays in Experimental Economics

This dissertation consists of five essays contributing to a better understanding of three fundamental lines of research in behavioral economics: trust and cooperation in social interactions, gender discrimination, and decision making under risk and uncertainty. All essays are novel contributions and based on the experimental economics method. In some of the essays, game-theoretical solutions are provided and experimental findings are related to behavioral theories.2021-06-1

Reciprocity towards Incentives for Supply Chain Restoration Investment: Models, Experimental Studies and Surveys

In this thesis, we evaluate the use of incentives offered beyond a contract compared with those within a contract to motivate supplier investment in restoration capability, which can serve as a signal of reciprocity. In the rst chapter, we analytically examine to what extent a Direct incentive, which is paid by the manufacturer unconditionally prior to disruption, differs from an Indirect incentive, which is promised to be paid when a disruption occurs in a dyadic supply chain. We specify the conditions under which the two types of incentive are economically equivalent for both a manufacturer and a supplier. More importantly, we derive a ratio of investment amount to incentive value as a proxy of supplier reciprocity towards incentives offered by the manufacturer. Our analytical results indicate that reciprocal concern drives higher investment amount per unit incentive under Direct incentive than under Indirect incentive. The results further suggest that the manufacturer should always offer a Direct incentive as long as it is economically equivalent to an Indirect one, and should do so particularly when an ambiguous prospect for recovery outcomes is anticipated with less optimism. The following chapter examines supplier reciprocal behaviour towards manufacturer incentives in a laboratory setting. The experimental study confirms prior analytical results that a Direct incentive can induce stronger reciprocal responses as opposed to an Indirect incentive. We reveal that the offer of a Direct incentive particularly strengthens suppliers reciprocal behaviour in long-term relationships. This result provides evidence for a synergy by coupling Direct incentives with long-term relationships. Furthermore, we observe that subjects decisions in repeated game conditions are associated with learning behaviours, in which the selfish motive of maximising their own benets can be restrained when they repeatedly interact. In the third chapter, we evaluate the moderating effects of perceived relational factors on the relationship between manufacturer incentives and observed supplier investments in the experiment. A post-experiment survey was developed to capture individual differences in subjects perceptions of the buyer-supplier relationship. We provide evidence that a supplier's investment decision towards its manufacturer's incentive offered is moderated by self-perception and felt obligation of the relationship. The underlying determinants of the perceived relational factors are explored. We suggest that ambiguity and other-regarding preferences are associated with self-perception; whereas, perpetrator justice sensitivity is related to the felt obligation for reciprocity in the buyer-supplier relationship

Bargaining and Negotiations What should experimentalists explore more thoroughly?

A long time ago most economists would have limited themselves to stating that agreements should be individually rational and efficient and that selecting a specific agreement from that set depends on bargaining and negotiation power whatever that may be. Nowadays hardly any economist will argue that way. The change has been brought about by the strategic approach to bargaining and cooperation and the parallel experimental studies of bargaining and negotiation. When arguing what should be explored more thoroughly, we will point out directions where previous efforts may have been misdirected, where importing new methods may be helpful or even needed, and where new research questions need to be asked and answered.(un)bounded rationality, (non-)cooperative game theory, bargaining and negotiation (theory and experiments)

Beliefs correspondences and equilibria in ambiguous games

The Nash equilibrium concept combines two fundamental ideas. First, rational players choose the most preferred strategy given their beliefs about what other players will do. Second, it imposes the consistency condition that all players' beliefs are correct. This consistency condition has often been considered too strong and different solution concepts have been introduced in the literature in order to take into account ambiguous beliefs. In this paper, we show, by means of examples, that in some situation beliefs might be dependent on the strategy profile and that this kind of contingent ambiguity affects equilibrium behavior differently with respect to the existing models of ambiguous games. Hence we consider a multiple prior approach and subjective beliefs correspondences which depend on the strategy profile; we investigate existence of the equilibrium concepts corresponding to different attitudes towards ambiguity (namely optimism and pessimism). Finally we analyze particular beliefs correspondences: beliefs given by correlated equilibria and by ambiguity levels on events