Sequential Preference Revelation in Incomplete Information Settings

Strategy-proof allocation rules incentivize truthfulness in simultaneous move games, but real world mechanisms sometimes elicit preferences sequentially. Surprisingly, even when the underlying rule is strategy-proof and nonbossy, sequential elicitation can yield equilibria where agents have a strict incentive to be untruthful. This occurs only under incomplete information, when an agent anticipates that truthful reporting would signal false private information about others’ preferences. We provide conditions ruling out this phenomenon, guaranteeing all equilibrium outcomes to be welfare-equivalent to truthful ones. (JEL C73, D45, D82, D83)

A Structural Econometric Analysis of Network Formation Games Through Subnetworks

The objective of this paper is to identify and estimate network formation models using observed data on network structure. We characterize network formation as a simultaneous‐move game, where the utility from forming a link depends on the structure of the network, thereby generating strategic interactions between links. With the prevalence of multiple equilibria, the parameters are not necessarily point identified. We leave the equilibrium selection unrestricted and propose a partial identification approach. We derive bounds on the probability of observing a subnetwork, where a subnetwork is the restriction of a network to a subset of the individuals. Unlike the standard bounds as in Ciliberto and Tamer (2009), these subnetwork bounds are computationally tractable in large networks provided we consider small subnetworks. We provide Monte Carlo evidence that bounds from small subnetworks are informative in large networks.

Endogenous Price Leadership with Asymmetric Costs: Experimental Evidence

This paper presents experimental evidence on the action commitment game with cost-asymmetric firms in a differentiated-products Bertrand duopoly. Unlike its quantity-setting counterpart, the risk-dominant leader–follower equilibrium Pareto dominates the simultaneous-move equilibrium. This equilibrium also minimizes payoff differences between firms. Hence, one would expect the model to accurately capture behavior. The evidence partially supports the theory: low-cost firms price in the first period more often than high-cost firms, and depending on the treatment, between 40 and 57 per cent of all observations conform to equilibrium play. However, the modal timing outcome involved both firms delaying their pricing decision. This timing outcome is characterized by Nash play and some collusion. The high frequency of delaying decisions could be due to a desire to reduce strategic uncertainty.

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.

More Is Not Always Better: The Case of Counterterrorism Security

Can counterterrorism security be counterproductive? We argue that it can be when the at-risk population acts strategically. We model a two-stage game where the government first chooses the defensive security level for a public place. The second stage is a simultaneous-move game with terrorist choosing terror effort and members of the population deciding whether or not to attend the public place. Our key measure of the efficiency of the counterterrorism security is the expected number of casualties. Under very standard and general assumptions, we show that it is possible that more security leads to an increase in that number. This is because increasing security both discourages and encourages the terrorist. On the one hand, more security makes a successful terror attack less likely (discouragement). On the other hand, more security motivates more people to attend the public place which makes the attack more valuable to the terrorist (encouragement).

Stakeholder Fairness Under an Induced ‘Veil of Ignorance'

John Rawls introduced the ‘veil of ignorance' in social contract theory to bring about a common conception of justice, and hypothesized that it will enable rational individuals to choose distributive shares on basis of ‘maximin' principle. R. E. Freeman conceptualised stakeholder fairness using the Rawlsian ‘veil of ignorance'. In contrast to Rawls' theory, John Harsanyi postulated that rational individuals behind the ‘veil of ignorance' will choose allocation to maximise expected utility. This article investigates how subjects choose allocations behind the ‘veil of ignorance,' in a laboratory experiment, and interprets the findings in light of stakeholder fairness. The ‘veil of ignorance' was induced on randomly paired and mutually anonymous subjects, who were asked to choose allocations in a simultaneous move discrete choice Nash demand game. Both ‘maximin' principle and expected utility maximisation was found to be used by the subjects. Choice of allocations where no one is worse off vis-à-vis status quo was salient. This is consistent with Freeman's Principle of Governance.

Peer‐Confirming Equilibrium

We can often predict the behavior of those closest to us more accurately than that of complete strangers, yet we routinely engage in strategic situations with both: our social network impacts our strategic knowledge. Peer‐confirming equilibrium describes the behavioral consequences of this intuition in a noncooperative game. We augment a game with a network to represent strategic information: if two players are linked in the network, they have correct conjectures about each others' strategies. In peer‐confirming equilibrium, there is common belief that players (i) behave rationally and (ii) correctly anticipate neighbors' play. In simultaneous‐move games, adding links to the network always restricts the set of outcomes. In dynamic games, the outcome set may vary non‐monotonically with the network because the actions of well‐connected players help poorly‐connected players coordinate. This solution concept provides a useful language for studying public good provision, highlights a new channel through which central individuals facilitate coordination, and delineates possible sources of miscoordination in protests and coups.