7 research outputs found
Does mutual knowledge of preferences lead to more equilibrium play? Experimental evidence
In many experiments, the Nash equilibrium concept seems not to predict well. One reason may be that players have non-selfish preferences over outcomes. As a consequence, even when they are told what the material payoffs of the game are, mutual knowledge of preferences may not be satisfied. We experimentally examine several 2x2 games and test whether revealing players' preferences leads to more equilibrium play. For that purpose, we elicit subjects' preferences over outcomes before the games are played. It turns out that subjects are significantly more likely to play an equilibrium strategy when other players' preferences are revealed. We discuss a noisy version of the Bayesian Nash equilibrium and a model of strategic ambiguity to account for observed subject behavior
Essays on Social Preferences in Experimental Economics
The dissertation consists of four experimental studies where social preferences can act as a motivational factor for individual decisions
Three essays on first-price auctions with independent private values
Thesis (Ph.D.) -- University of Adelaide, School of Economics, 201
Strategic Interaction under Uncertainty
The theory of strategic interaction or, game theory, for short, plays an important role in
economics. It can offer insights into situations in which two or more interacting individuals
choose actions that jointly affect the payoff of each party. Game-theoretic applications
cover a wide range of economic, political and social situations such as auctions, contract
formation, bargaining situations, political competition, and public good provision, to
only name a few. This broad scope of application makes it a powerful concept. Most
games involve some kind of uncertainty. For instance, players may be uncertain about
the strategy choice of other players or they may lack information about the strategic
environment.
Game theory is closely tied to decision theory. In fact, the former can be viewed as
the natural extension of the latter. In the words of Myerson (1991, p. 5): "The logical
roots of game theory are in Bayesian decision theory. Indeed, game theory can be viewed
as an extension of decision theory [...]. Thus, to understand the fundamental ideas of
game theory, one should begin by studying decision theory." Bayesian decision theory
assumes that decision makers' subjective beliefs can be represented by unique probability
measures and that they update their prior beliefs in accordance with Bayes' rule when
receiving new information. Furthermore, Bayesian decision-makers usually are subjective
expected utility maximizers. Savage (1954) provided an axiomatic foundation for the
Bayesian approach. His subjective expected utility theory has become the leading model
of choice under uncertainty.
However, Ellsberg (1961) questioned the descriptive adequacy of subjective expected
utility theory. He exempliffed that the choice behavior of many subjects is not consistent
with Savage's theory when facing "ambiguous uncertainty", or "ambiguity", that is, a
situation in which some events have known probabilities, whereas for other ones the
probabilities are unknown. Ellsberg's observation has received powerful empirical support
in the last decades (see Camerer and Weber, 1992). In this thesis, the term "uncertainty"
will be used as a generic term to cover both ambiguity and non-ambiguous uncertainty
("risk"). To represent behavior as observed by Ellsberg, several alternatives to subjective
expected utility theory have been suggested in recent years. Two prominent alternatives
are Choquet expected utility theory of Schmeidler (1989) and the multiple prior approach
of Gilboa and Schmeidler (1989). More recent examples are the smooth ambiguity model
of Klibanoff et al. (2005) and the variational model of Maccheroni et al. (2006).
The main goal of this thesis is to shed some light on the impact of ambiguity-sensitive
behavior on strategic decision-making in interactive situations. As Crawford (1990, p.
152) appropriately expressed it: "In recent years, non-expected utility decision models
have given us significantly better explanations of observed behavior in nonstrategic environments.
These successes, and the weight of the experimental evidence against the
expected utility hypothesis, suggest that much might be learned about strategic behavior
by basing applications of game theory on more general models of individual decisions
under uncertainty." In this spirit, the present thesis investigates non-cooperative game
models that are based on alternative models of individual decision-making under uncertainty.
The main body of this dissertation consists of three chapters (Chapters 4, 5 and
6), each of which studies strategic interaction under uncertainty. Chapter 4 and 5 explore
formal models in which uncertainty arises from exogenous chance moves and incomplete
information, respectively. While the game studied in Chapter 4 does not involve private
information, the model in Chapter 5 allows for private information. Chapter 6 experimentally
examines the extent to which a lack of information about others' preferences
affects subject behavior. It is shown that a strategic ambiguity model as well as a quasi
Bayesian model of incomplete information explain the findings better than standard Nash equilibrium.
The results of chapters 4 and 6 are based on collaborative work with Boris Wiesenfarth (Chapter 4), and Christoph Brunner and Hannes Rau (Chapter 6).
This thesis is organized as follows. Chapter 2 outlines the decision-theoretic foundations
of the interactive models studied in this work. First, the historical development of
modern decision theory is briefly reviewed. I recall in some detail the fundamentals of
subjective expected utility theory as well as the experiments by Ellsberg (1961). Finally,
alternative models of choice under uncertainty are considered, especially, the Choquet
expected utility model and the multiple prior model. These models will be used in subsequent
chapters. Chapter 3 discusses some conceptual foundations of non-cooperative
game theory. It starts with sketching the historical roots of modern game theory. Basic
concepts such as the concept of a game and the Nash equilibrium concept are recalled.
The last part of this chapter deals with different sources of uncertainty in games. In the
context of strategic uncertainty, I describe generalized equilibrium concepts that allow for
players whose preferences are not represented by expected utility functionals. Furthermore,
I review the class of Bayesian games introduced by Harsanyi (1967-68) to analyze
games of incomplete information.
In Chapter 4, a Hotelling duopoly game that incorporates ambiguous uncertainty
about the market demand is examined. The key assumption of this model is that firms'
beliefs are represented by neo-additive capacities introduced by Chateauneuf et al. (2007).
The related literature is reviewed and the model is specified. Moreover, this chapter discusses
implications for possible applications of the Capacity model and limitations of
the existing models. Chapter 5 investigates the extent to which we can distinguish expected
and uncertainty-averse non-expected utility players on the basis of their behavior.
A model of incomplete information games is used in which players can choose mixed
strategies. First, this model is illustrated by two examples and described in detail. The
following part of the chapter provides the results. Subsequently, I discuss the underlying
model and introduce a generalized equilibrium concept. Chapter 6 reports on the results
of the aforementioned experimental study testing whether revealing players' preferences to
each other leads to more equilibrium play. Chapter 7 concludes with an overall summary