A Bargaining Game with Proposers in the Hot Seat

This note reconsiders the Rubinstein bargaining game under the assumption that a rejected offer is only costly to the proposer who made the rejected offer. It is shown that then, the classic result of Shaked that, in the multilateral version of this game, every division of the good can be sustained in SPE no longer holds. Specifically, there are many SPE, but players’ (expected) payoffs in SPE are unique. The assumption further leads to a responder advantage.

Sanctions and international interaction improve cooperation to avert climate change

Imposing sanctions on noncompliant parties to international agreements is often advocated as a remedy for international cooperation failure, notably in climate agreements. We provide an experimental test of this conjecture in a collective-risk social dilemma simulating the effort to avoid catastrophic climate change. We involve groups of participants from two cultural areas that were shown to achieve different levels of cooperation nationally when peer-level sanctions were available. Here we show that, while this result still holds nationally, international interaction backed by sanctions is overall beneficial. Cooperation by low cooperator groups increases significantly in comparison with national cooperation and converges to the cooperation levels of high cooperation groups. While the increase is only marginally significant without sanctions, it becomes sizable when sanctions are imposed. When sanctions are available, individuals are willing to cooperate above the level that would maximize expected payoffs. Revealing or hiding counterparts’ nationality does not affect results.

Simulating the Principal-Agent Relationship between Enterprise Owners and Professional Managers Using Evolutionary Game Theory and System Dynamics

The separation of ownership and management is a common operation mode in modern enterprises, which establishes the principal-agent relationship between modern enterprise owners and professional managers. Due to the information asymmetry and interest conflicts between the principal and agent, the principal-agent problem will occur and affect the efficiency of enterprise operations. Therefore, it is necessary to propose measures to improve the principal-agent relationship. This paper analyzed the principal-agent problem between enterprise owners and professional managers based on system dynamics, evolutionary game, and principal-agent theory and built a principal-agent evolutionary game model to analyze the rule of strategic choices and predict the equilibrium outcomes of different scenarios. In addition, the influence of different factors on strategic choices was simulated by the system dynamics model. The results depicted that the basic benefits and costs of cooperation are the key factors of the strategic choices, and the gap between the expected payoffs of different strategies also affects the probability of choosing those cooperative strategies. Proper supervision, standardization of the managerial labor market, and establishment of long-term incentives are crucial to cooperation between enterprise owners and professional managers.

A Virtuous Circle of Governance Contests with Externalities

Governments create contests to allocate resources to stakeholders, e.g., grants, contracts. The actions of these stakeholders can generate a positive externality for themselves—the contest winner can attract additional outside funding and donations from third-parties who want to jump on the winner’s bandwagon. Herein we examine the externalities arising from these contests created by governance and their impact on a virtuous circle of governance contests. Among various conditions that make governance virtuous, we focus on the equilibrium expected payoffs of stakeholders, the difference in them, and the rent-dissipation rates. Our study shows that the impact of externalities on the efficiency of governance depends on two key factors: (i) the choice of governance contests, the player-externality and the winner-externality, and (ii) the relative efficiency of stakeholders’ efforts.

Robustness of Equilibria in Anonymous Local Games

This paper studies the robustness of symmetric equilibria in anonymous local games to perturbations of prior beliefs. Two priors are strategically close on a class of games if players receive similar expected payoffs in equilibrium under the priors, for any game in that class. I show that if the structure of payoff interdependencies is sparse in a well-defined sense, the conditions for strategic proximity in anonymous local games are strictly weaker than the conditions for general Bayesian games of Kajii and Morris [11] when attention is restricted to symmetric equilibria. Hence, by exploiting the properties of anonymous local games, it is possible to obtain stronger robustness results for this class.

The Value of Information Searching against Fake News

Inspired by the Daley-Kendall and Goffman-Newill models, we propose an Ignorant-Believer-Unbeliever rumor (or fake news) spreading model with the following characteristics: (i) a network contact between individuals that determines the spread of rumors; (ii) the value (cost versus benefit) for individuals who search for truthful information (learning); (iii) an impact measure that assesses the risk of believing the rumor; (iv) an individual search strategy based on the probability that an individual searches for truthful information; (v) the population search strategy based on the proportion of individuals of the population who decide to search for truthful information; (vi) a payoff for the individuals that depends on the parameters of the model and the strategies of the individuals. Furthermore, we introduce evolutionary information search dynamics and study the dynamics of population search strategies. For each value of searching for information, we compute evolutionarily stable information (ESI) search strategies (occurring in non-cooperative environments), which are the attractors of the information search dynamics, and the optimal information (OI) search strategy (occurring in (eventually forced) cooperative environments) that maximizes the expected information payoff for the population. For rumors that are advantageous or harmful to the population (positive or negative impact), we show the existence of distinct scenarios that depend on the value of searching for truthful information. We fully discuss which evolutionarily stable information (ESI) search strategies and which optimal information (OI) search strategies eradicate (or not) the rumor and the corresponding expected payoffs. As a corollary of our results, a recommendation for legislators and policymakers who aim to eradicate harmful rumors is to make the search for truthful information free or rewarding.

Managing Security Outsourcing in the Presence of Strategic Hackers

Nowadays, firms tend to outsource security operations to professional managed security service providers (MSSPs) as a result of the sophistication of strategic hackers. Thus, how an MSSP makes security decisions according to a strategic hacker’s action is worth researching. Constructing a contract theory model, this paper examines the interaction between an MSSP and a strategic hacker based on both parties’ characteristics. We find that the hacker will give up less valuable information assets, and thus not all information assets are worth protecting for the MSSP. For both parties, their optimal efforts do not necessarily increase with their respective efficiency, and the firm’s reputation loss has an opposite effect on its respective efforts. Moreover, we distinguish two types of security externalities including MSSP-side externality and hacker-side externality, and we find that the two types of security externalities have different effects on both parties’ optimal efforts and expected payoffs. We also find that as a result of the trade-off between the integration effect of the MSSP and the effect of MSSP-side externality, firms are still willing to outsource their security operations to the MSSP even when an MSSP devotes fewer security efforts than those of firms that manage security in-house. Last, we extend our base model from two aspects to generalize the main results.

Hybrid Assessment Scheme Based on the Stern- Judging Rule for Maintaining Cooperation under Indirect Reciprocity

Intensive studies on indirect reciprocity have explored rational assessment rules for maintaining cooperation and several have demonstrated the effects of the stern-judging rule. Uchida and Sasaki demonstrated that the stern-judging rule is not suitable for maintaining cooperative regimes in private assessment conditions while a public assessment system has been assumed in most studies. Although both assessment systems are oversimplified and society is most accurately represented by a mixture of these systems, little analysis has been reported on their mixture. Here, we investigated how much weight on the use of information originating from a public source is needed to maintain cooperative regimes for players adopting the stern-judging rule when players get information from both public and private sources. We did this by considering a hybrid-assessment scheme in which players use both assessment systems and by using evolutionary game theory. We calculated replicator equations using the expected payoffs of three strategies: unconditional cooperation, unconditional defection, and stern-judging rule adoption. Our analysis shows that the use of the rule helps to maintain cooperation if reputation information from a unique public notice board is used with more than a threshold probability. This hybrid-assessment scheme can be applied to other rules, including the simple-standing rule and the staying rule.

A Game-Free Microfoundation of Mutual Optimism

One of the most widely accepted explanations for why wars occur despite its Pareto-suboptimality is mutual optimism: if both sides expect to gain a lot by fighting, war becomes inevitable. The literature on mutual optimism typically assumes mutually optimistic beliefs and shows that, under such an assumption, war may occur despite its Pareto-suboptimality. In a war–peace model, we show that, if players neglect the correlation between other players’ actions and their types—a well-established concept in economics—then players’ expected payoffs from war increase relative to conventional informational sophistication predictions, hence providing a microfoundation of mutual optimism.

Behavior in Strategic Settings: Evidence from a Million Rock-Paper-Scissors Games

We make use of data from a Facebook application where hundreds of thousands of people played a simultaneous move, zero-sum game—rock-paper-scissors—with varying information to analyze whether play in strategic settings is consistent with extant theories. We report three main insights. First, we observe that most people employ strategies consistent with Nash, at least some of the time. Second, however, players strategically use information on previous play of their opponents, a non-Nash equilibrium behavior; they are more likely to do so when the expected payoffs for such actions increase. Third, experience matters: players with more experience use information on their opponents more effectively than less experienced players, and are more likely to win as a result. We also explore the degree to which the deviations from Nash predictions are consistent with various non-equilibrium models. We analyze both a level-k framework and an adapted quantal response model. The naive version of each these strategies—where players maximize the probability of winning without considering the probability of losing—does better than the standard formulation. While one set of people use strategies that resemble quantal response, there is another group of people who employ strategies that are close to k 1 ; for naive strategies the latter group is much larger.