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Games, Volume 13, Issue 2 (April 2022) – 13 articles

Cover Story (view full-size image): We investigate why a firm might purposefully hire a chief executive officer (CEO) who under- or over-estimates the degree of substitutability between competing products. We show that this behavioral bias will not occur in perfect competition or monopoly. In imperfect competition, however, CEO bias may prove profitable because it can affect rival behavior and the intensity of competition. We lay out the conditions under which it is profitable for owners to hire biased managers. Our work shows that a universal policy that effectively eliminates such biases need not improve social welfare. View this paper.
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30 pages, 9271 KiB  
Article
Endogenous Abatement Technology Agreements under Environmental Regulation
Games 2022, 13(2), 32; https://doi.org/10.3390/g13020032 - 14 Apr 2022
Viewed by 2036
Abstract
In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement, and R&D, which reduces abatement cost. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We [...] Read more.
In a domestic market, a duopoly produces a homogeneous final good, pollution, pollution abatement, and R&D, which reduces abatement cost. One of the firms (foreign) has superior technology. The government regulates the duopoly by levying a pollution tax to maximize domestic welfare. We consider the potential implementation of three innovation agreements: cooperative research joint venture (RJV), non-cooperative RJV, and licensing. In the cooperative (non-cooperative) RJV, the firms (do not) internalize R&D spillovers. We show that, for the domestic firm, the cooperative RJV dominates, and licensing is the least desirable alternative. Although licensing is dominant for the foreign firm, it is not implementable. Both RJVs are implementable. Implementation of both types of RJVs improves the competitiveness of the domestic firm and welfare. This study yields an important policy prescription: a subsidy policy that induces the foreign firm to accept a feasible cooperative RJV when it strictly prefers a feasible non-cooperative RJV is always welfare improving. Full article
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14 pages, 349 KiB  
Article
Should I Play or Should I Go? Individuals’ Characteristics and Preference for Uncertainty
Games 2022, 13(2), 31; https://doi.org/10.3390/g13020031 - 13 Apr 2022
Cited by 1 | Viewed by 2008
Abstract
This paper presents an incentivized experiment analyzing the role of demographic characteristics in individual decision-making under uncertainty. Reactions to a natural source of uncertainty, payoffs in a TV game show, were measured using Fuzzy-set Qualitative Comparative Analysis (fsQCA), allowing us to identify multiple [...] Read more.
This paper presents an incentivized experiment analyzing the role of demographic characteristics in individual decision-making under uncertainty. Reactions to a natural source of uncertainty, payoffs in a TV game show, were measured using Fuzzy-set Qualitative Comparative Analysis (fsQCA), allowing us to identify multiple configurations of causal conditions that are sufficient for individuals to prefer an uncertain payoff to a sure gain, and, thus, lower risk aversion. This paper found evidence of preference for uncertainty, measured as willingness to play for an uncertain payoff, in individuals with characteristics most commonly present in the literature: being male; young; childless; with studies in finance or similar areas. This paper also shows that conditions that would not justify the preference for uncertainty according to the literature (an older individual or having children), when combined with other conditions, change contestants’ behavior regarding preference for uncertainty. Individuals that are both older and single, and individuals that have children combined with education in finance, show an inverse effect on preference for uncertainty. Full article
(This article belongs to the Section Behavioral and Experimental Game Theory)
14 pages, 502 KiB  
Article
Correcting for Random Budgets in Revealed Preference Experiments
Games 2022, 13(2), 30; https://doi.org/10.3390/g13020030 - 11 Apr 2022
Viewed by 1946
Abstract
Experiments on revealed preference often use budget sets that are randomly and independently drawn according to some criteria for each participant. However, this means that the budget sets faced by different individuals are not the same. This paper proposes a method to control [...] Read more.
Experiments on revealed preference often use budget sets that are randomly and independently drawn according to some criteria for each participant. However, this means that the budget sets faced by different individuals are not the same. This paper proposes a method to control for these differences. In particular, we control for the “power” of different budget sets by examining the consistency of an individual’s choices relative to some simulated baseline behavior conditional on budgets faced by the individual. We apply this methodology to two existing experimental datasets. Our results show that failure to account for this variation results in a bias when looking directly at measures of choice consistency and the sign of this bias depends on the measure being used. However, controlling for this variation does not change the correlation between measures of choice consistency and observable demographic characteristics like income and education. Full article
(This article belongs to the Special Issue Developing and Testing Theories of Decision Making)
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2 pages, 151 KiB  
Editorial
A Preface for the Special Issue “Economics of Conflict and Terrorism”
Games 2022, 13(2), 29; https://doi.org/10.3390/g13020029 - 01 Apr 2022
Viewed by 1585
Abstract
The current Special Issue presents an interesting collection of seven articles that expand the existing literature on the subjects of terrorism and conflict [...] Full article
(This article belongs to the Special Issue Economics of Conflict and Terrorism)
23 pages, 3287 KiB  
Article
CEO Bias and Product Substitutability in Oligopoly Games
Games 2022, 13(2), 28; https://doi.org/10.3390/g13020028 - 31 Mar 2022
Viewed by 2253
Abstract
We investigate why a firm might purposefully hire a chief executive officer (CEO) who under- or over-estimates the degree of substitutability between competing products. This counterintuitive result arises in imperfect competition because CEO bias can affect rival behavior and the intensity of competition. [...] Read more.
We investigate why a firm might purposefully hire a chief executive officer (CEO) who under- or over-estimates the degree of substitutability between competing products. This counterintuitive result arises in imperfect competition because CEO bias can affect rival behavior and the intensity of competition. We lay out the conditions under which it is profitable for owners to hire biased managers. Our work shows that a universal policy that effectively eliminates such biases need not improve social welfare. Full article
(This article belongs to the Topic Game Theory and Applications)
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4 pages, 192 KiB  
Article
Egalitarian Allocations and Convexity
Games 2022, 13(2), 27; https://doi.org/10.3390/g13020027 - 31 Mar 2022
Viewed by 1576
Abstract
In the Inverse Set, relative to the Shapley Value of a non-convex cooperative game, we derive a procedure to find out a convex game in which the Egalitarian Allocation is a coalitional rational value. The procedure depends on the relationship between two parameters [...] Read more.
In the Inverse Set, relative to the Shapley Value of a non-convex cooperative game, we derive a procedure to find out a convex game in which the Egalitarian Allocation is a coalitional rational value. The procedure depends on the relationship between two parameters called the Convexity Threshold and the Coalitional Rationality Threshold. Some examples follow and illustrate the procedure. We discussed a similar problem for other efficient values, the Shapley Value and the Egalitarian Nonseparable Contribution, in earlier work. Full article
(This article belongs to the Special Issue Political Economy, Social Choice and Game Theory - Series II)
28 pages, 349 KiB  
Article
An Experimental Study of Strategic Voting and Accuracy of Verdicts with Sequential and Simultaneous Voting
Games 2022, 13(2), 26; https://doi.org/10.3390/g13020026 - 30 Mar 2022
Cited by 1 | Viewed by 2201
Abstract
In a model of simultaneous voting, Feddersen and Pesendorfer (1998) consider the possibility that jurors vote strategically, rather than sincerely reflecting their individual information. This results in the counterintuitive result that a jury is more likely to convict the innocent under a unanimity [...] Read more.
In a model of simultaneous voting, Feddersen and Pesendorfer (1998) consider the possibility that jurors vote strategically, rather than sincerely reflecting their individual information. This results in the counterintuitive result that a jury is more likely to convict the innocent under a unanimity rule than under majority rule. Dekel and Piccione (2000) show that those unintuitive predictions also hold with sequential voting. In this paper, we report paired experiments with sequential and simultaneous voting under unanimity and majority rule. Observed behavior varies significantly depending on whether juries vote simultaneously or in sequence. We also find evidence that subjects use information inferred from prior votes in making their sequential voting decisions, but that information implied by being pivotal in simultaneous votes does not seem to be reliably processed. Full article
(This article belongs to the Special Issue Social Dilemmas and Other-Regarding Preferences)
10 pages, 253 KiB  
Article
Risk Aversion, Managerial Reputation, and Debt–Equity Conflict
Games 2022, 13(2), 25; https://doi.org/10.3390/g13020025 - 30 Mar 2022
Cited by 1 | Viewed by 2108
Abstract
When a firm finances a new project by issuing debt, it has an incentive to invest in excessively high-risk projects because shareholders enjoy all the benefits in case the project is successful but have limited liability when it fails. Anticipating such behavior, creditors [...] Read more.
When a firm finances a new project by issuing debt, it has an incentive to invest in excessively high-risk projects because shareholders enjoy all the benefits in case the project is successful but have limited liability when it fails. Anticipating such behavior, creditors may require a higher interest rate or may even refuse to provide capital. This debt–equity conflict is alleviated by the fact that most investment decisions are made by risk-averse managers who are not as well diversified as shareholders. This paper investigates the debt–equity conflict in firms in which the managers have an unobservable degree of risk averseness. Since managerial risk averseness is a desirable quality, such asymmetric information makes managers undertake actions that increase the market’s perception of them as being highly risk-averse. Consequently, such reputation building leads to a lower number of excessively high-risk projects being undertaken. This paper compares the entrepreneurial economy, in which managers are the sole owners of the firms, with the corporate economy, in which managers are hired by shareholders. Using the overlapping generations model, this paper shows that managerial reputation building can partially resolve the debt–equity conflict and improve efficiency in both economies; however, such improvement is larger in the entrepreneurial economy. Full article
6 pages, 270 KiB  
Article
Optimal Accuracy of Unbiased Tullock Contests with Two Heterogeneous Players
Games 2022, 13(2), 24; https://doi.org/10.3390/g13020024 - 25 Mar 2022
Cited by 2 | Viewed by 2382
Abstract
I characterize the optimal accuracy level r of an unbiased Tullock contest between two players with heterogeneous prize valuations. The designer maximizes the winning probability of the strong player or the winner’s expected valuation by choosing a contest with an all-pay auction equilibrium [...] Read more.
I characterize the optimal accuracy level r of an unbiased Tullock contest between two players with heterogeneous prize valuations. The designer maximizes the winning probability of the strong player or the winner’s expected valuation by choosing a contest with an all-pay auction equilibrium (r2). By contrast, if she aims at maximizing the expected aggregate effort or the winner’s expected effort, she will choose a contest with a pure-strategy equilibrium, and the optimal accuracy level r<2 decreases in the players’ heterogeneity. Finally, a contest designer who faces a tradeoff between selection quality and minimum (maximum) effort will never choose a contest with a semi-mixed equilibrium. Full article
(This article belongs to the Special Issue Advances in the Theory and Applications of Contests and Tournaments)
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3 pages, 166 KiB  
Commentary
What Economists Can Learn from “The Power of Us: Harnessing Our Shared Identities for Personal and Collective Success” by Jay J. Van Bavel and Dominick J. Packer
Games 2022, 13(2), 23; https://doi.org/10.3390/g13020023 - 10 Mar 2022
Viewed by 2246
Abstract
Social identity theory has become increasingly important for economists. I discuss the contribution of Van Bavel and Packer’s “The Power of Us” in light of what economists (especially experimental ones) can learn from their research. Full article
(This article belongs to the Special Issue Group Behaviour)
22 pages, 903 KiB  
Article
How Strong Are Soccer Teams? The “Host Paradox” and Other Counterintuitive Properties of FIFA’s Former Ranking System
Games 2022, 13(2), 22; https://doi.org/10.3390/g13020022 - 03 Mar 2022
Cited by 3 | Viewed by 2656
Abstract
I investigate the paradoxes associated with the Fédération Internationale de Football Association (FIFA) point-based ranking of national soccer teams. The ranking has been plagued with paradoxes that incentivize teams to avoid playing friendly matches, i.e., matches that are not part of any official [...] Read more.
I investigate the paradoxes associated with the Fédération Internationale de Football Association (FIFA) point-based ranking of national soccer teams. The ranking has been plagued with paradoxes that incentivize teams to avoid playing friendly matches, i.e., matches that are not part of any official FIFA tournament or preliminaries, and applying other counterintuitive strategies. The most spectacular paradox was the dramatic underrating of the hosts of major tournaments. For a long time, host teams, which were absent from preliminary matches, would play only friendly matches that awarded few points. Here, I present three models that estimate the magnitude of the resulting “host effect” at 14.2–16 positions. Such an estimate counteracts the intuition that a large investment in hosting a tournament should result in an improvement in the host team’s standing. However, as discussed here, a given host’s low ranking could decrease interest in the tournament, and likely result in a major loss of advertisement revenue. Full article
(This article belongs to the Special Issue Political Economy, Social Choice and Game Theory - Series II)
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8 pages, 255 KiB  
Article
A Note on Time Inconsistency and Endogenous Exits from a Currency Union
Games 2022, 13(2), 21; https://doi.org/10.3390/g13020021 - 23 Feb 2022
Viewed by 1924
Abstract
This paper investigates the effects of members’ exits from a currency union on the credibility of the common currency. In our currency union model, the inflation rate of the common currency is determined by majority voting among N member countries that are heterogeneous [...] Read more.
This paper investigates the effects of members’ exits from a currency union on the credibility of the common currency. In our currency union model, the inflation rate of the common currency is determined by majority voting among N member countries that are heterogeneous with respect to their output shocks. Once an inflation rate of the common currency has been selected, each member decides whether to remain in the currency union or not. If a member decides to exit, it has to pay a fixed social cost and individually chooses the inflation rate of its currency. Unlike previous research on this topic, we focus on the possibility of achieving an optimal outcome, which generates no inflation bias, when more than one member is expected to leave the currency union. We show that the optimal outcome can only be achieved if no members leave the currency union. Full article
(This article belongs to the Special Issue Weighted Majority Voting Games)
19 pages, 1052 KiB  
Article
The Evolution of Ambiguity in Sender—Receiver Signaling Games
Games 2022, 13(2), 20; https://doi.org/10.3390/g13020020 - 22 Feb 2022
Cited by 1 | Viewed by 2993
Abstract
We study an extended version of a sender–receiver signaling game—a context-signaling (CS) game that involves external contextual cues that provide information about a sender’s private information state. A formal evolutionary analysis of the investigated CS game shows that ambiguous signaling strategies can achieve [...] Read more.
We study an extended version of a sender–receiver signaling game—a context-signaling (CS) game that involves external contextual cues that provide information about a sender’s private information state. A formal evolutionary analysis of the investigated CS game shows that ambiguous signaling strategies can achieve perfect information transfer and are evolutionarily stable. Moreover, a computational analysis of the CS game shows that such perfect ambiguous systems have the same emergence probability as non-ambiguous perfect signaling systems in multi-agent simulations under standard evolutionary dynamics. We contrast these results with an experimental study where pairs of participants play the CS game for multiple rounds with each other in the lab to develop a communication system. This comparison shows that unlike virtual agents, human agents clearly prefer perfect signaling systems over perfect ambiguous systems. Full article
(This article belongs to the Special Issue Social Learning and Cultural Evolution)
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