The Quality of Equilibria for Set Packing Games

We introduce set packing games as an abstraction of situations in which $n$ selfish players select subsets of a finite set of indivisible items, and analyze the quality of several equilibria for this class of games. Assuming that players are able to approximately play equilibrium strategies, we show that the total quality of the resulting equilibrium solutions is only moderately suboptimal. Our results are tight bounds on the price of anarchy for three equilibrium concepts, namely Nash equilibria, subgame perfect equilibria, and an equilibrium concept that we refer to as $k$-collusion Nash equilibrium

General Opinion Formation Games with Social Group Membership (Short Paper)

Modeling how agents form their opinions is of paramount importance for designing marketing and electoral campaigns. In this work, we present a new framework for opinion formation which generalizes the well-known Friedkin-Johnsen model by incorporating three important features: (i) social group membership, that limits the amount of influence that people not belonging to the same group may lead on a given agent; (ii) both attraction among friends, and repulsion among enemies; (iii) different strengths of influence lead from different people on a given agent, even if the social relationships among them are the same. We show that, despite its generality, our model always admits a pure Nash equilibrium which, under opportune mild conditions, is even unique. Next, we analyze the performances of these equilibria with respect to a social objective function defined as a convex combination, parametrized by a value λ ∈ [0, 1], of the costs yielded by the untruthfulness of the declared opinions and the total cost of social pressure. We prove bounds on both the price of anarchy and the price of stability which show that, for not-too-extreme values of λ, performance at equilibrium are very close to optimal ones. For instance, in several interesting scenarios, the prices of anarchy and stability are both equal to (Equation presented) which never exceeds 2 for λ ∈ [1/5, 1/2]

Endogenous Heterogeneity in Strategic Models: Symmetry-breaking via Strategic Substitutes and Nonconcavities

This paper is an attempt to develop a unified approach to endogenous heterogeneity by constructing general class of two-player symmetric games that always possess only asymmetric pure-strategy Nash equilibria. These classes of games are characterized in some abstract sense by two general properties: payo? non-concavities and some form of strategic substitutability. We provide a detailed discussion of the relationship of this work with Matsuyama’s symmetry breaking framework and with business strategy literature. Our framework generalizes a number of models dealing with two-stage games, with long term investment decisions in the first stage and product market competition in the second stage. We present the main examples that motivate this study to illustrate the generality of our approach.firm heterogeneity; submodular games; business strategy; innovation strategies.

Feature-based Choice and Similarity in Normal-form Games: An Experimental Study

In this paper, we test the effect of descriptive "features" on initial strategic behavior in normal form games, where the term "descriptive" indicates all those features which can be modified without altering the (Nash) equilibrium structure of a game. Our experimental subjects behaved according to some simple heuristics based on descriptive features, and we observed that these heuristics were stable even across strategically different games. These findings indicate the need to incorporate descriptive features into models describing strategic sophistication in normal form games. Analysis of choice patterns and individual behavior indicates that non-equilibrium choices may derive from incorrect and simplified mental representations of the game structure, rather than from beliefs in other players' irrationality. We suggest how level-k and cognitive hierarchy models might be extended to account for heuristic-based and feature-based behavior.normal form games, one-shot games, response times, dominance, similarity, categorization, focal points, individual behavior

Mechanisms of Endogenous Institutional Change

This paper proposes an analytical-cum-conceptual framework for understanding the nature of institutions as well as their changes. In doing so, it attempts to achieve two things: First, it proposes a way to reconcile an equilibrium (endogenous) view of institutions with the notion of agents’ bounded rationality by introducing such concepts as a summary representation of equilibrium as common knowledge of agents. Second, it specifies some generic mechanisms of institutional coherence and change -- overlapping social embededdness, Schumpeterian innovation in bundling games and dynamic institutional complementarities -- useful for understanding the dynamic interactions of economic, political, social and organizational factors.

Stressed web environments as strategic games: risk profiles and Weltanschauung

We consider the behaviour of a set of services in a stressed web environment where performance patterns may be di cult to pre- dict. In stressed environments the performances of some providers may degrade while the performances of others, with elastic resources, may improve. The allocation of web-based providers to users (brokering) is modelled by a strategic non-cooperative angel-daemon game with risk pro les. A risk pro le speci es a bound on the number of unreliable ser- vice providers within an environment without identifying the names of these providers. Risk pro les o er a means of analysing the behaviour of broker agents which allocate service providers to users. A Nash equilib- rium is a xed point of such a game in which no user can locally improve their choice of provider { thus, a Nash equilibrium is a viable solution to the provider/user allocation problem. Angel daemon games provide a means of reasoning about stressed environments and o er the possibility of designing brokers using risk pro les and Nash equilibria.Postprint (author’s final draft

Competitive Pressure, Incentives and Managerial Rewards

The paper examines the equilibrium relationship between managerial incentives and product market competition in imperfectly competitive industries. In a simple managerial economy, where owners simultaneously choose reward schemes and managers are privately informed on firms. production technologies, it is showed that a competing-contracts effect, at play under high powered incentive schemes (contracts based on firms’ profits), may induce competitive pressure to elicit managerial effort. An inverted-U shaped relationship between product market competition, managerial effort and agency costs thus obtains when contracts are based on firms’ profits. Remarkably, whenever competition is strong enough, low powered incentive schemes (contracts based on production costs) may survive in equilibrium with detrimental effects on welfare.competing contracts, cost-target, managerial .rms, pro.t-target, product market competition, vertical hierarchies, X-inefficiency

The Influence of Experimental and Computational Economics: Economics Back to the Future of Social Sciences

Economics has been a most puzzling science, namely since the neoclassical revolution defined the legitimate procedures for theorisation and quantification. Its epistemology has based on farce: decisive tests are not applied on dare predictions. As a consequence, estimation has finally been replaced by simulation, and empirical tests have been substituted by non-disciplined exercises of comparison of models with reality. Furthermore, the core concepts of economics defy the normally accepted semantics and tend to establish meanings of their own. One of the obvious instances is the notion of rationality, which has been generally equated with the apt use of formal logic or the ability to apply econometric estimation as a rule of thumb for daily life. In that sense, rationality is defined devoid of content, as alien to the construction of significance and reference by reason and social communication. The contradictory use of simulacra and automata, by John von Neumann and Herbert Simon, was a response to this escape of economic models from reality, suggesting that markets could be conceived of as complex institutions. But most mainstream economists did not understand or did not accept these novelties, and the empirical inquiry or the realistic representation of the action of agents and of their social interaction remained a minor domain of economics, and was essentially ignored by canonical theorizing. The argument of the current paper is based on a survey and discussion of the twin contributions of experimental and computational economics to these issues. Although mainly arising out of the mainstream, these emergent fields of economics generate challenging heuristics as well as new empirical results that defy orthodoxy. Their contributions both to the definition of the social meanings of rationality and to the definition of a new brand of inductive economics are discussed.

Reconstructing growth theory: A survey

Growth Models