Dynamic oligopoly models are used in industrial organization and the management sciences to analyze diverse dynamic phenomena such as investments in R&D or capacity, the entry and exit of firms, and dynamic pricing. The applicability of these models has been severely limited, however, by the curse of dimensionality involved in the Markov perfect equilibrium (MPE) computation. In this work we introduce a new model and equilibrium concept that alleviates the curse of dimensionality. Our model focuses on "two-tiered" industries in which few "dominant" firms have a significant market share and there are many "fringe" firms with a small market share each; this is a prevalent market structure in many industries. In MPE each firm keeps track of all of its competitors' individual states, which for example, represent their quality level. In our approach each firm keeps track of the individual states of dominant firms only and of few aggregate statistics that summarize the state of fringe firms; this dramatically reduces the dimensionality of the equilibrium computation problem. We present an asymptotic result that provides a theoretical justification for our approach. We introduce an efficient algorithm to compute our equilibrium concept and report results from computational case studies that illustrate applications. Our results suggest that our approach greatly increases the applicability of dynamic oligopoly models and opens up the door to studying novel issues in industry dynamics.
{"title":"A two tiered dynamic oligopoly model","authors":"Bar Ifrach, V. Farias, G. Weintraub","doi":"10.1145/1807406.1807472","DOIUrl":"https://doi.org/10.1145/1807406.1807472","url":null,"abstract":"Dynamic oligopoly models are used in industrial organization and the management sciences to analyze diverse dynamic phenomena such as investments in R&D or capacity, the entry and exit of firms, and dynamic pricing. The applicability of these models has been severely limited, however, by the curse of dimensionality involved in the Markov perfect equilibrium (MPE) computation. In this work we introduce a new model and equilibrium concept that alleviates the curse of dimensionality. Our model focuses on \"two-tiered\" industries in which few \"dominant\" firms have a significant market share and there are many \"fringe\" firms with a small market share each; this is a prevalent market structure in many industries. In MPE each firm keeps track of all of its competitors' individual states, which for example, represent their quality level. In our approach each firm keeps track of the individual states of dominant firms only and of few aggregate statistics that summarize the state of fringe firms; this dramatically reduces the dimensionality of the equilibrium computation problem. We present an asymptotic result that provides a theoretical justification for our approach. We introduce an efficient algorithm to compute our equilibrium concept and report results from computational case studies that illustrate applications. Our results suggest that our approach greatly increases the applicability of dynamic oligopoly models and opens up the door to studying novel issues in industry dynamics.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124859087","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper characterizes the testable implications of stability for aggregate matchings. We consider data on matchings where individuals are aggregated, based on their observable characteristics, into types, and we know how many agents of each type match. We derive stability conditions for an aggregate matching, and, based on these, provide a simple necessary and sufficient condition for an observed aggregate matching to be rationalizable (i.e. such that preferences can be found so that the observed aggregate matching is stable). Subsequently, we derive moment inequalities based on the stability conditions, and provide an empirical illustration using the cross-sectional marriage distributions across the US states.
{"title":"Aggregate matchings","authors":"Federique Echenique, SangMok Lee, M. Shum","doi":"10.1145/1807406.1807477","DOIUrl":"https://doi.org/10.1145/1807406.1807477","url":null,"abstract":"This paper characterizes the testable implications of stability for aggregate matchings. We consider data on matchings where individuals are aggregated, based on their observable characteristics, into types, and we know how many agents of each type match. We derive stability conditions for an aggregate matching, and, based on these, provide a simple necessary and sufficient condition for an observed aggregate matching to be rationalizable (i.e. such that preferences can be found so that the observed aggregate matching is stable). Subsequently, we derive moment inequalities based on the stability conditions, and provide an empirical illustration using the cross-sectional marriage distributions across the US states.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124892948","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We model a market for a single product that may be composed of sub-products that face horizontal and vertical competition. Each firm, offering all or some portion of the product, adopts a price function proportional to its costs by deciding on the size of a markup. Customers then choose a set of providers that offers the lowest total cost. We characterize equilibria of the two-stage game and study the efficiency resulting from the competitive structure of the market.
{"title":"Pricing with markups under horizontal and vertical competition","authors":"J. Correa, R. Lederman, N. Stier-Moses","doi":"10.1145/1807406.1807498","DOIUrl":"https://doi.org/10.1145/1807406.1807498","url":null,"abstract":"We model a market for a single product that may be composed of sub-products that face horizontal and vertical competition. Each firm, offering all or some portion of the product, adopts a price function proportional to its costs by deciding on the size of a markup. Customers then choose a set of providers that offers the lowest total cost. We characterize equilibria of the two-stage game and study the efficiency resulting from the competitive structure of the market.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129319640","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We consider a group of suppliers who have the same facilities and similar capabilities to produce goods with a very short lead-time for n retailers (newsvendors) who sell non-identical products. We treat such short lead-time capacity as a commodity that can be traded as futures to the retailers. In a two-stage inventory model, retailers buy physical goods and capacity futures as inventory portfolios in the first stage to determine their inventory positions in the selling season. After realization of demand is observed in the second stage, retailers make a replenishment decision that is limited to the capacity futures on hand. However, retailers are allowed to form coalitions to transfer the residual capacity futures among themselves. Therefore, retailers have bidirectional adjustments to their inventory positions. We prove that this mechanism is a good tool to induce suppliers to offer their capacities in the season, and the futures market provides a hedge for them. We employ a biform game to analyze the risk and payoff of retailers as players in both non-cooperative and cooperative stages. The Nash equilibrium in the first stage and the core in the second stage have been identified. Our findings suggest retailers can share risk among different supply chains with different products to mitigate inventory risk and improve their payoffs. However, the game discriminates against those retailers that have lower profit margin, lower inventory cost and lower lost sales penalty.
我们考虑一组供应商，他们拥有相同的设施和类似的能力，可以在很短的交货期内为 n 个销售非同类产品的零售商（newsvendors）生产商品。我们将这种短交货期能力视为一种商品，可以作为期货交易提供给零售商。在两阶段库存模型中，零售商在第一阶段购买实物商品和产能期货作为库存组合，以确定其在销售季节的库存头寸。在第二阶段观察到需求实现后，零售商做出的补货决策仅限于手头的产能期货。然而，零售商之间可以结成联盟，转让剩余的产能期货。因此，零售商可以双向调整其库存头寸。我们证明了这一机制是促使供应商在旺季提供产能的良好工具，而期货市场则为供应商提供了对冲工具。我们采用双形式博弈来分析零售商作为博弈方在非合作和合作阶段的风险和收益。我们确定了第一阶段的纳什均衡和第二阶段的核心均衡。我们的研究结果表明，零售商可以在不同产品的不同供应链之间分担风险，从而降低库存风险，提高收益。然而，博弈会歧视那些利润率较低、库存成本较低和销售损失惩罚较低的零售商。
{"title":"n-newsvendor biform game of trading capacity futures","authors":"Yick-hin Hung, Leon Y. O. Li, T. Cheng","doi":"10.1145/1807406.1807438","DOIUrl":"https://doi.org/10.1145/1807406.1807438","url":null,"abstract":"We consider a group of suppliers who have the same facilities and similar capabilities to produce goods with a very short lead-time for n retailers (newsvendors) who sell non-identical products. We treat such short lead-time capacity as a commodity that can be traded as futures to the retailers. In a two-stage inventory model, retailers buy physical goods and capacity futures as inventory portfolios in the first stage to determine their inventory positions in the selling season. After realization of demand is observed in the second stage, retailers make a replenishment decision that is limited to the capacity futures on hand. However, retailers are allowed to form coalitions to transfer the residual capacity futures among themselves. Therefore, retailers have bidirectional adjustments to their inventory positions. We prove that this mechanism is a good tool to induce suppliers to offer their capacities in the season, and the futures market provides a hedge for them. We employ a biform game to analyze the risk and payoff of retailers as players in both non-cooperative and cooperative stages. The Nash equilibrium in the first stage and the core in the second stage have been identified. Our findings suggest retailers can share risk among different supply chains with different products to mitigate inventory risk and improve their payoffs. However, the game discriminates against those retailers that have lower profit margin, lower inventory cost and lower lost sales penalty.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130052453","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
How do people reason about others in strategic situations and how does that affect their behavior? These questions have been at the forefront of game theory since its inception in the first half of the twentieth century. Traditionally, the focus has been on the question how "rational" players behave. As already observed by VonNeumann and Morgenstern (1944), however, the question how rational players should behave cannot be separated from the question how non-rational players behave. Even if one is concerned only with rational behavior, the interactive nature of the problem makes that one has to deal with all possible types of players: What is optimal for a rational player depends on what he expects his opponents to do, and these opponents may be boundedly rational. It is therefore desirable to have a theory of behavior in strategic settings that encompasses both perfect rationality and forms of bounded rationality. In this talk, I describe a general theoretical framework that takes into account that individuals may have limited capacities to reason about others, and sometimes only have access to a very coarse description of the game. I discuss the strategic implications of such a framework.
{"title":"Bounded rationality in games","authors":"W. Kets","doi":"10.1145/1807406.1807434","DOIUrl":"https://doi.org/10.1145/1807406.1807434","url":null,"abstract":"How do people reason about others in strategic situations and how does that affect their behavior? These questions have been at the forefront of game theory since its inception in the first half of the twentieth century. Traditionally, the focus has been on the question how \"rational\" players behave. As already observed by VonNeumann and Morgenstern (1944), however, the question how rational players should behave cannot be separated from the question how non-rational players behave. Even if one is concerned only with rational behavior, the interactive nature of the problem makes that one has to deal with all possible types of players: What is optimal for a rational player depends on what he expects his opponents to do, and these opponents may be boundedly rational. It is therefore desirable to have a theory of behavior in strategic settings that encompasses both perfect rationality and forms of bounded rationality. In this talk, I describe a general theoretical framework that takes into account that individuals may have limited capacities to reason about others, and sometimes only have access to a very coarse description of the game. I discuss the strategic implications of such a framework.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132495041","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
New insights into the theory of games with strategic substitutes (GSS) are developed. These games possess extremal serially undominated strategies that provide bounds on predicted behavior and on limiting behavior of adaptive dynamics, similar to games with strategic complements (GSC). In parameterized GSS, monotone equilibrium selections are dynamically stable under natural conditions, as in parameterized GSC. Dominance solvability in GSS is not equivalent to uniqueness of Nash equilibrium, but is equivalent to uniqueness of simply rationalizable strategies. Convergence of best response dynamics in GSS is equivalent to global convergence of adaptive dynamics, is equivalent to dominance solvability, and implies uniqueness of equilibrium, all in contrast to GSC. In particular, Cournot stability is equivalent to dominance solvability in GSS. The results shed light on predicted behavior, learning, global stability, uniqueness of equilibrium, and dynamic stability of monotone comparative statics in GSS. Several examples are provided.
{"title":"Rationalizability, adaptive dynamics, and the correspondence principle in games with strategic substitutes","authors":"Sunanda Roy, Tarun Sabarwal","doi":"10.1145/1807406.1807431","DOIUrl":"https://doi.org/10.1145/1807406.1807431","url":null,"abstract":"New insights into the theory of games with strategic substitutes (GSS) are developed. These games possess extremal serially undominated strategies that provide bounds on predicted behavior and on limiting behavior of adaptive dynamics, similar to games with strategic complements (GSC). In parameterized GSS, monotone equilibrium selections are dynamically stable under natural conditions, as in parameterized GSC. Dominance solvability in GSS is not equivalent to uniqueness of Nash equilibrium, but is equivalent to uniqueness of simply rationalizable strategies. Convergence of best response dynamics in GSS is equivalent to global convergence of adaptive dynamics, is equivalent to dominance solvability, and implies uniqueness of equilibrium, all in contrast to GSC. In particular, Cournot stability is equivalent to dominance solvability in GSS. The results shed light on predicted behavior, learning, global stability, uniqueness of equilibrium, and dynamic stability of monotone comparative statics in GSS. Several examples are provided.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115433379","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Estimation of games with multiple equilibria has received much attention in the recent econometrics literature. Unlike other estimation problems such as single-agent dynamic decision models or demand estimation, in which there is a unique solution in the underlying structural models, games usually admit multiple equilibria and the number of equilibria in a game can vary for different structural parameters. This fact makes the estimation of games far more challenging because the likelihood function or other criterion function defined in the space of structural parameters can be discontinuous or non-differentiable. Two-step estimators by Bajari et al. (2007) and Pesendorfer and Schmidt-Dengler (2008) and Nested Pusedo Likelihood (NPL) estimators by Aguirregabiria and Mira (2007) are proposed to address this problem. We recast the estimation problem as a constrained optimization problem with the Bayesian-Nash equilibrium condition being the constraints. The advantage of our formulation is that the likelihood function, now defined in the equilibrium probability space, is continuous and smooth. This allows researchers to use state-of-the-art optimization software to solve the estimation problem. In a Monte Carlo study, we compare the performance of a two-step estimator, NLP estimator, and our constrained optimization estimator.
{"title":"Structural estimation of discrete-choice games of incomplete information with multiple equilibria","authors":"Che-Lin Su, K. Judd","doi":"10.1145/1807406.1807445","DOIUrl":"https://doi.org/10.1145/1807406.1807445","url":null,"abstract":"Estimation of games with multiple equilibria has received much attention in the recent econometrics literature. Unlike other estimation problems such as single-agent dynamic decision models or demand estimation, in which there is a unique solution in the underlying structural models, games usually admit multiple equilibria and the number of equilibria in a game can vary for different structural parameters. This fact makes the estimation of games far more challenging because the likelihood function or other criterion function defined in the space of structural parameters can be discontinuous or non-differentiable. Two-step estimators by Bajari et al. (2007) and Pesendorfer and Schmidt-Dengler (2008) and Nested Pusedo Likelihood (NPL) estimators by Aguirregabiria and Mira (2007) are proposed to address this problem. We recast the estimation problem as a constrained optimization problem with the Bayesian-Nash equilibrium condition being the constraints. The advantage of our formulation is that the likelihood function, now defined in the equilibrium probability space, is continuous and smooth. This allows researchers to use state-of-the-art optimization software to solve the estimation problem. In a Monte Carlo study, we compare the performance of a two-step estimator, NLP estimator, and our constrained optimization estimator.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115564704","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Cognitive hierarchy and level-k models assume players use steps of reasoning iteratively. Precision comes from making (and testing) various assumptions about the step distribution, beliefs of players at each step, and responsiveness to expected payoff. I describe several empirical examples of these models applied to lab experiments and two field settings. In addition, eyetracking and some neural evidence are supportive of the concept of limits of iterated thinking and suggest some interesting research directions.
{"title":"Cognitive hierarchy modelling of lab, field and neural data","authors":"Colin Camerer","doi":"10.1145/1807406.1807440","DOIUrl":"https://doi.org/10.1145/1807406.1807440","url":null,"abstract":"Cognitive hierarchy and level-k models assume players use steps of reasoning iteratively. Precision comes from making (and testing) various assumptions about the step distribution, beliefs of players at each step, and responsiveness to expected payoff. I describe several empirical examples of these models applied to lab experiments and two field settings. In addition, eyetracking and some neural evidence are supportive of the concept of limits of iterated thinking and suggest some interesting research directions.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124774426","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
A new centralized mechanism was introduced in New York City and Boston to assign students to public schools in district school-choice programs. This mechanism was advocated for its superior fairness property, besides others, over the mechanisms it replaced. In this paper, we introduce a new framework for investigating school-choice matching problems and two notions of fairness in lottery design, strong ex-ante stability and ex-ante stability. This framework generalizes known one-to-many two-sided and one-sided matching models. We first show that the new NYC/Boston mechanism fails to satisfy these fairness properties. We then propose two new mechanisms, the fractional deferred acceptance mechanism, which is ordinally Pareto dominant within the class of strongly ex-ante stable mechanisms, and the fractional deferred acceptance and trading mechanism which is constrained ordinally Pareto efficient within the class of exante stable mechanisms.
{"title":"Lottery mechanism design for school choice","authors":"Onur Kesten, M. Utku Ünver","doi":"10.1145/1807406.1807504","DOIUrl":"https://doi.org/10.1145/1807406.1807504","url":null,"abstract":"A new centralized mechanism was introduced in New York City and Boston to assign students to public schools in district school-choice programs. This mechanism was advocated for its superior fairness property, besides others, over the mechanisms it replaced. In this paper, we introduce a new framework for investigating school-choice matching problems and two notions of fairness in lottery design, strong ex-ante stability and ex-ante stability. This framework generalizes known one-to-many two-sided and one-sided matching models. We first show that the new NYC/Boston mechanism fails to satisfy these fairness properties. We then propose two new mechanisms, the fractional deferred acceptance mechanism, which is ordinally Pareto dominant within the class of strongly ex-ante stable mechanisms, and the fractional deferred acceptance and trading mechanism which is constrained ordinally Pareto efficient within the class of exante stable mechanisms.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123957758","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We adopt a psychological games perspective to analyze behavior and beliefs in a Trust Game experiment. Subjects are randomly assigned to the role of "truster", A player, and "trustee", B player. Assuming that B subjects may be affected by guilt aversion and reciprocity, we try to elicit their belief dependent motivations with a set of hypothetical questions. We design the experiment so that subjects have no incentives to manipulate and we check that answers are reliable. We have two main treatments. In the No-Transmission (control) treatment, B's (belief dependent) preferences cannot be common knowledge, hence the game has incomplete information. In the Transmission treatment, B's answers to the hypothetical questions are transmitted and made common knowledge between the two matched subjects. In so far as such answers reveal the "psychological type" of B, this treatment approximates a psychological game with complete information. In this case, assuming that players coordinate their expectations on the efficient equilibrium, we should observe trust/cooperation when the revealed type of B is guilt averse (or reciprocal) and no-trust/defection when he is selfish. We also provide qualitative predictions for the incomplete information case, based on a simplified Bayesian psychological game. The main insight is that average behavior is intermediate. We analyze the set of answers of each B subject with a grid estimation algorithm. Most B subjects are not selfish and we observe a dominance of guilt aversion over reciprocity. Coherently with our theoretical insights, our experimental results show that in the Transmission treatment inducing a psychological game with (approximately) complete information behavior is more extreme: in the subpopulation of matched pairs where B is highly guilt averse there is more trust and cooperation than in the corresponding incomplete information setting without transmission; whereas in the subpopulation of matched pairs where B has low guilt aversion there is less trust and cooperation than in the corresponding incomplete information setting. In both information settings, we find that the B subjects' cooperation rate is positively related to guilt aversion.
{"title":"Disclosure of belief-dependent preferences in the trust game","authors":"G. Attanasi, Pierpaolo Battigalli, R. Nagel","doi":"10.1145/1807406.1807457","DOIUrl":"https://doi.org/10.1145/1807406.1807457","url":null,"abstract":"We adopt a psychological games perspective to analyze behavior and beliefs in a Trust Game experiment. Subjects are randomly assigned to the role of \"truster\", A player, and \"trustee\", B player. Assuming that B subjects may be affected by guilt aversion and reciprocity, we try to elicit their belief dependent motivations with a set of hypothetical questions. We design the experiment so that subjects have no incentives to manipulate and we check that answers are reliable. We have two main treatments. In the No-Transmission (control) treatment, B's (belief dependent) preferences cannot be common knowledge, hence the game has incomplete information. In the Transmission treatment, B's answers to the hypothetical questions are transmitted and made common knowledge between the two matched subjects. In so far as such answers reveal the \"psychological type\" of B, this treatment approximates a psychological game with complete information. In this case, assuming that players coordinate their expectations on the efficient equilibrium, we should observe trust/cooperation when the revealed type of B is guilt averse (or reciprocal) and no-trust/defection when he is selfish. We also provide qualitative predictions for the incomplete information case, based on a simplified Bayesian psychological game. The main insight is that average behavior is intermediate.\u0000 We analyze the set of answers of each B subject with a grid estimation algorithm. Most B subjects are not selfish and we observe a dominance of guilt aversion over reciprocity. Coherently with our theoretical insights, our experimental results show that in the Transmission treatment inducing a psychological game with (approximately) complete information behavior is more extreme: in the subpopulation of matched pairs where B is highly guilt averse there is more trust and cooperation than in the corresponding incomplete information setting without transmission; whereas in the subpopulation of matched pairs where B has low guilt aversion there is less trust and cooperation than in the corresponding incomplete information setting. In both information settings, we find that the B subjects' cooperation rate is positively related to guilt aversion.","PeriodicalId":142982,"journal":{"name":"Behavioral and Quantitative Game Theory","volume":null,"pages":null},"PeriodicalIF":0.0,"publicationDate":"2010-05-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129973652","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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