Mutual Cooperation and Tolerance to Defection in the Context of Socialization: The Theoretical Model and Experimental Evidence

The study of the nature of human cooperation still contains gaps needing investigation. Previous findings reveal that socialization effectively promotes cooperation in the well-known Prisoner’s dilemma (PD) game. However, theoretical concepts fail to describe high levels of cooperation (probability higher than 50%) that were observed empirically. In this paper, we derive a symmetrical quantal response equilibrium (QRE) in PD in Markov strategies and test it against experimental data. Our results indicate that for low levels of rationality, QRE manages to describe high cooperation. In contrast, for high rationality QRE converges to the Nash equilibrium and describes low-cooperation behavior of participants. In the area of middle rationality, QRE matches the curve that represents the set of Nash equilibrium in Markov strategies. Further, we find that QRE serves as a dividing line between behavior before and after socialization, according to the experimental data. Finally, we successfully highlight the theoretically-predicted intersection of the set of Nash equilibrium for PD in Markov strategies and the QRE curve.

Zero-sum games for pure jump processes with risk-sensitive discounted cost criteria

<p style='text-indent:20px;'>In this paper we study zero-sum stochastic games for pure jump processes on a general state space with risk sensitive discounted criteria. We establish a saddle point equilibrium in Markov strategies for bounded cost function. We achieve our results by studying relevant Hamilton-Jacobi-Isaacs equations.</p>

A CLOSED-FORM SOLUTION TO A MODEL OF TWO-SIDED, PARTIAL ALTRUISM

This paper presents a closed-form characterization of the allocation of resources in an overlapping generations model of two-sided, partial altruism. Three assumptions are made: (i) parents and children play Markov strategies, (ii) utility takes the CRRA form, and (iii) the income of children is stochastic but proportional to the saving of parents. In families where children are rich relative to their parents, saving rates—measured as a function of the family's total resources—are higher than when children are poor relative to their parents. Income redistribution from the old to the young, therefore, leads to an increase in aggregate saving.

Truthful Revelation Mechanisms for Simultaneous Common Agency Games

We introduce new revelation mechanisms for simultaneous common agency games which, although they do not always permit a complete equilibrium characterization, do facilitate the characterization of the equilibrium outcomes that are typically of interest in applications. We then show how these mechanisms can be used in applications such as menu auctions, competition in nonlinear tariffs, and moral hazard settings. Lastly, we show how one can enrich the revelation mechanisms, albeit at a cost of an increase in complexity, to characterize all possible equilibrium outcomes, including those sustained by non-Markov strategies and/or mixed-strategy profiles. (JEL C72, D82, D86)