Sensitivity of equilibrium behavior to higher-order beliefs in nice games

We analyze “nice” games (where action spaces are compact intervals, utilities continuous and strictly concave in own action), which are used frequently in classical economic models. Without making any “richness” assumption, we characterize the sensitivity of any given Bayesian Nash equilibrium to higher-order beliefs. That is, for each type, we characterize the set of actions that can be played in equilibrium by some type whose lower-order beliefs are all as in the original type. We show that this set is given by a local version of interim correlated rationalizability. This allows us to characterize the robust predictions of a given model under arbitrary common knowledge restrictions. We apply our framework to a Cournot game with many players. There we show that we can never robustly rule out any production level below the monopoly production of each firm

Intention-based economic theories of reciprocity

Recientemente, varios experimentos han mostrado que los individuos exhiben un comportamiento auténticamente recíproco en interacciones anónimas que se dan una sola vez ('one-shot'). En tanto que se ha mostrado que la reciprocidad es relevante en múltiples campos de la economía, han existido varios intentos por modelar el comportamiento recíproco. Este documento revisa los modelos de reciprocidad que se fundamentan en las intenciones y presenta un ejemplo para el caso del manejo de los profesores en el sector público, en el que el gobierno ofrece un esquema de incentivos para la implementación de un programa. Este esquema tiene la estructura del dilema del prisionero. Tanto en los juegos simultáneos como secuenciales, los resultados de equilibrio puede ser distintos a los que predice la teoría convencional. ************************************************************************ In recent years, several experiments have shown that individuals exhibit authentic reciprocal behavior in anonymous one-shot interactions. As reciprocity has been shown to be relevant in several economic fields, there have also been several attempts to model reciprocical behavior. I review the intention-based models of reciprocity and present an example in teachers´ management in the public sector in which a government offers an incentive scheme to implement a program. The incentive scheme has the prisioner’s dilemma structure, In both simultaneous and sequential games, in equilibrium reciprocal teachers may reach other equilibria different from those predicted by the standard theory.Game theory, psychological games,Intention-based models, reciprocl behaviour

Progress in Behavioral Game Theory

Is game theory meant to describe actual choices by people and institutions or not? It is remarkable how much game theory has been done while largely ignoring this question. The seminal book by von Neumann and Morgenstern, The Theory of Games and Economic Behavior, was clearly about how rational players would play against others they knew were rational. In more recent work, game theorists are not always explicit about what they aim to describe or advise. At one extreme, highly mathematical analyses have proposed rationality requirements that people and firms are probably not smart enough to satisfy in everyday decisions. At the other extreme, adaptive and evolutionary approaches use very simple models-mostly developed to describe nonhuman animals-in which players may not realize they are playing a game at all. When game theory does aim to describe behavior, it often proceeds with a disturbingly low ratio of careful observation to theorizing

Efficiency, Reciprocity and Expectations in an Experimental Game

We experimentally investigate the nature of strategic interaction in a 2-player game.Player 1may take x Dutch guilders (f x) and end the game (player 2 then gets f 0), or let player 2 split f 20 between the players. x is a treatment variable taking values of f 4, 7, 10, 13, and 16.We find that most players 2 "give away" positive amounts (f6 on average), but their choices are independent of x.We explicitly measure the players' beliefs and find that many players 1 expect to get back no more than f x but nevertheless let player 2 split the f 20, and that the behavior by the players 2 is consistent with a theory of a guilt based on psychological game theory.game theory

Promises & Partnership

We examine, experimentally and theoretically, how communication within a partnership may mitigate the problem (highlighted in contract theory) of hidden action. What is the form and content of the communication? Which model of decision-making can capture the impact of communication? We consider free-form communication, measure beliefs (about actions and beliefs), and examine which motivational forces influence subjects. We find they harbor belief-dependent preferences that can be captured using psychological game theory. In particular, agents are influenced by guilt aversion, which suggests a theory of why and how communication influences behavior in which statements of intent and resulting expectations play a special role. This has bearing on how to understand partnerships and contracts.Promises; partnership; contract theory; behavioral economics; hidden action; moral hazard; lies; social preferences; psychological game theory; guilt aversion; reciprocity; fairness

Anxiety and Learning in Dynamic and Static Clock Game Experiments

In clock games, agents receive differently-timed private signals when an asset value is above its fundamental. The price crashes to the fundamental when K of N agents have decided to sell. If selling decisions are private, bubbles can be sustained because people delay selling, after receiving signals, knowing that others will delay too. Our results replicate the main features of the one previous experimental study of clock game (in two subject pools): Selling delays are shorter than predicted, but converge toward equilibrium predictions over repeated trials. We also find that delays are shorter in a dynamic game in which selling decisions unfold over time, compared to a static equivalent in which subjects precommit to selling decisions. A model of learning with growing anxiety after signal arrival can reproduce the empirical observations of shorter-than-predicted delay, smaller delay after later signal arrival, and shorter delays in dynamic games

An overview of economic applications of David Schmeidler`s models of decision making under uncertainty

This paper surveys some economic applications of the decision theoretic framework pioneered by David Schmeidler to model effects of ambiguity. We have organized the discussion principally around three themes: financial markets, contractual arrangements and game theory. The first section discusses papers that have contributed to a better understanding of financial market outcomes based on ambiguity aversion. The second section focusses on contractual arrangements and is divided into two sub-sections. The first sub-section reports research on optimal risk sharing arrangements, while in the second sub-section, discusses research on incentive contracts. The third section concentrates on strategic interaction and reviews several papers that have extended different game theoretic solution concepts to settings with ambiguity averse players. A final section deals with several contributions which while not dealing with ambiguity per se, are linked at a formal level, in terms of the pure mathematical structures involved, with Schmeidler`s models of decision making under ambiguity. These contributions involve issues such as, inequality measurement, intertemporal decision making and multi-attribute choice.Ellsberg Paradox, Ambiguity aversion, Uncertainty aversion