Correlated equilibria, good and bad : an experimental study

We report results from an experiment that explores the empirical validity of correlated equilibrium, an important generalization of the Nash equilibrium concept. Specifically, we seek to understand the conditions under which subjects playing the game of Chicken will condition their behavior on private, third–party recommendations drawn from known distributions. In a “good–recommendations” treatment, the distribution we use is a correlated equilibrium with payoffs better than any symmetric payoff in the convex hull of Nash equilibrium payoff vectors. In a “bad–recommendations” treatment, the distribution is a correlated equilibrium with payoffs worse than any Nash equilibrium payoff vector. In a “Nash–recommendations” treatment, the distribution is a convex combination of Nash equilibrium outcomes (which is also a correlated equilibrium), and in a fourth “very–good–recommendations” treatment, the distribution yields high payoffs, but is not a correlated equilibrium. We compare behavior in all of these treatments to the case where subjects do not receive recommendations. We find that when recommendations are not given to subjects, behavior is very close to mixed–strategy Nash equilibrium play. When recommendations are given, behavior does differ from mixed–strategy Nash equilibrium, with the nature of the differ- ences varying according to the treatment. Our main finding is that subjects will follow third–party recommendations only if those recommendations derive from a correlated equilibrium, and further,if that correlated equilibrium is payoff–enhancing relative to the available Nash equilibria

Game Theory Relaunched

The game is on. Do you know how to play? Game theory sets out to explore what can be said about making decisions which go beyond accepting the rules of a game. Since 1942, a well elaborated mathematical apparatus has been developed to do so; but there is more. During the last three decades game theoretic reasoning has popped up in many other fields as well - from engineering to biology and psychology. New simulation tools and network analysis have made game theory omnipresent these days. This book collects recent research papers in game theory, which come from diverse scientific communities all across the world; they combine many different fields like economics, politics, history, engineering, mathematics, physics, and psychology. All of them have as a common denominator some method of game theory. Enjoy

Entrepreneurial Action and Entrepreneurial Rents

This dissertation is comprised of three independently standing research papers (chapters 2, 3 and 4) that come together in the common theme of investigating the relationship between entrepreneurial action and performance. The introduction chapter argues that this theme is the main agenda of an entrepreneurial approach to strategy, and provides some background and context for the core chapters. The entrepreneurial approach to strategy falls in line with an array of action-based theories of strategy that trace their economic foundations to the Austrian school of economics. Chapters 2 and 3 take a game theoretical modeling and computer simulation approach and represent one of the first attempts at formal analysis of the Austrian economic foundations of action-based strategy theory. These chapters attempt to demonstrate ways in which formal analysis can begin to approach compatibility with the central tenets of Austrian economics (i.e., subjectivism, dynamism, and methodological individualism). The simulation results shed light on our understanding of the relationship between opportunity creation and discovery, and economic rents in the process of moving towards and away from equilibrium. Chapter 4 operationalizes creation and discovery as exploration and exploitation in an empirical study using data from the Kauffman Firm Survey and highlights the trade-offs faced by start-ups in linking action to different dimensions of performance (i.e., survival, profitability, and getting acquired). Using multinomial logistic regression for competing risks analysis and random effects panel data regression, we find that high technology start-ups face a trade-off between acquisition likelihood and profitability-given-survival while low and medium technology start-ups face a trade-off between survival and profitability-given-survival. Chapter 5 concludes the dissertation by highlighting some of the overall contributions and suggesting avenues for future research

Robert Aumann's and Thomas Schelling's Contributions to Game Theory: Analyses of Conflict and Cooperation

Advanced information on the Bank of Sweden Prize in Economic Sciences in Memory of Alfred Nobel 2005.Game Theory;

Correlated Equilibria, Good and Bad: An Experimental Study

We report results from an experiment that explores the empirical validity of correlated equilibrium, an important generalization of the Nash equilibrium concept. Specifically, we seek to understand the conditions under which subjects will condition their behavior on private, third-party recommendations drawn from known distributions in playing the game of Chicken. In a `good-recommendations` treatment, the distribution is such that following recommendations comprises a correlated equilibrium with payoffs better than any symmetric payoff in the convex hull of Nash equilibrium payoff vectors. In a `bad-recommendations` treatment, the distribution is such that following recommendations comprises a correlated equilibrium with payoffs worse than any Nash equilibrium payoff vector. In a `Nash-recommendations` treatment, the distribution is a convex combination of Nash equilibrium outcomes (which is also a correlated equilibrium), and in a fourth `very-good-recommendations` treatment, the distribution yields high payoffs, but following recommendations does not comprise a correlated equilibrium. We compare behavior in all of these treatments to the case where subjects do not receive recommendations. We find that when recommendations are not given to subjects, behavior is very close to mixed-strategy Nash equilibrium play. When recommendations are given, behavior does differ from mixed-strategy Nash equilibrium, with the nature of the differences varying according to the treatment. Our main finding is that subjects will follow third-party recommendations only if those recommendations derive from a correlated equilibrium, and further, if that correlated equilibrium is payoff-enhancing relative to the available Nash equilibria.

Unstable Coalitions: Corporate Governance as a Multi-Player Game

This is an article written in honor of Professor Donald Schwartz, a leading figure in academic corporate law for over two decades, but also a man nearly unique in his willingness to move beyond corporate law to the general study of corporate behavior. In this light, this article will not explore the latest wrinkle in the law – the most recent case, latest SEC ruling, or newest takeover defense tactic – but will instead ask if there are new ways in which we should try to talk about corporate law and corporate behavior. These were questions that Don Schwartz repeatedly asked himself and others, and this article is a modest attempt to respond by suggesting a different framework within which we can better understand institutional bargaining inside the corporation. Let me begin by describing the prevailing orthodoxy. Scholars of both law and economics have tended to view corporate governance as largely a principal/agent relationship. Under this view, shareholders are the principals; management, the agents. While standard economic theory today describes the corporation as a series of bargains or nexus of contracts in which additional interest groups – creditors, employees, suppliers, etc. – also participate, it still assumes that these other actors will not seek to participate in governance decisions. Under the neoclassical view, efficiency dictates that only the firm\u27s residual claimants – its shareholders – should have voting rights. As a result, corporate governance (although not the broader topic of corporate contracting) essentially boils down to the principal/agent relationship between shareholders and managers. So viewed, the law\u27s role becomes that of reducing the agency costs that shareholders must incur to hold management faithful to their interests. The thesis of this article is that this bilateral model of corporate governance oversimplifies, basically because it leaves out an essential third player: stakeholders. Although stakeholders have not in the past sought to participate in corporate governance, this pattern is changing – only recently, to be sure, but very rapidly in some sectors of the economy. In some cases, the motor force driving this change may be the failure of an earlier system of implicit contracting; in other cases, it may be an exogenous change (such as the development of junk bonds) that revealed the inadequacy of existing contractual protections and left stakeholders exposed to new risks. In response, new contractual protections have been designed to protect some stakeholders, but other stakeholders have sought instead to participate in governance decisions. The key transition, however, is the formation of coalitions – sometimes between management and stakeholders to resist shareholder pressures and sometimes between stakeholders and shareholders to oust management. The central concern of this article will be where this transition is leading. Arguably, the public corporation should be viewed less as a series of bargains than as a series of coalitions. Compared to bargains, coalitions are less stable, less enforceable, and less predictable. While the nexus of contracts paradigm conveys, at least rhetorically, the view that the relationships among those interacting within the corporation are fixed and enforceable, the reality may be that these relationships are more fluid and transitional, with outcomes determined less on the basis of legal rights than through coalition politics