YorkProgramme 2014

York Annual Symposium on
Game Theory 2014

19-20 June 2014
Keynote Speakers:

Johannes Hrner (Yale)
Cheng-Zhong Qin (UC Santa Barbara)
Joel Sobel (UC San Diego)
Bernhard von Stengel (LSE)
Department of Economics and Related Studies, University of York, York, UK
York Annual Symposium on Game Theory 2014

The Symposium is financed by the Research and Impact Support (RIS) Fund at
the Department of Economics and Related Studies, University of York, UK.

Programme

19-20 June 2014 ARRC Auditorium (R/C/014), University of York

Day 1: Thursday 19 June 2014

09:00 Registration and Welcome

09:10 Johannes Hrner (Yale): Multi-stage unmediated communication in
a sender-receiver model

10:10 Break (Coffee and Tea)

10:40 Pter Vida (U Mannheim): Commitments, Intentions, Truth and Nash
Equilibria

Arkadi Predtetchinski (Maastricht): Subgame-perfect epsilon-equilibria
in perfect information games with common preferences at the limit

Jacco Thijssen (York): Strategic Hypothesis Testing

12:25 Lunch

14:00 Marco Scarsini (LUISS): Dynamic Congestion Games: The Price of
Seasonality

Malgorzata Mitka (York): Pure Strategy Nash Equilibrium
in an N-Country Trade Mode

Claudia Herresthal (Oxford): Mobility, Learning and School Choice

Luigi Siciliani (York): Should Incentive Schemes be High-powered or
Low-powered in the Presence of Motivated Agents?


16:50 Bernhard von Stengel (LSE): Recursive Inspection Games

17:50

End of Scientific Programme on Day1
18:00 Departure for Symposium Dinner



Day 2: Friday 20 June 2014

09:10 Joel Sobel (UC San Diego): Leaks


10:40 Jingfeng Lu (NUS): Optimal Contest Design with Incomplete
Information

Alexander Matros (Lancaster): Common Value Allocation
Mechanisms with Private Information: Lotteries or Auctions?

Zhiyun Li (Durham): Cheap-Talk Information Disclosure in Auctions

12:25 Lunch

14:00 Paul Schweinzer (York): How to share it out: The value of
information in teams

Fabrizio Germano (U Pompeu Fabra): Bounded Rationality and
Correlated Equilibria

Anindya Bhattacharya (York): Policy and Multinational Firms: the
Race to the Bottom Revisited

Zaifu Yang (York): Decentralized Market Processes to Stable Job
Matchings with Competitive Salaries


16:50 Cheng-Zhong Qin (UC Santa Barbara): Advances in Bargaining
Theory

17:50 Farewell



Abstracts

Johannes Hrner (Yale): Multi-stage unmediated communication in a
sender-receiver model

Pter Vida (joint with Karl H. Schlag): Commitments, Intentions,
Truth and Nash Equilibria

We explore the common wisdom that games with multiple Nash equilibria
are easier to play if players can communicate. We present a simple
model of communication in games under complete information with two
variants, identified by when communication takes place. Sending a
message before play captures talk about intentions, after play captures
talk about past commitments. We focus on equilibria where messages are
believed whenever possible, thereby develop a theory of credible
communication. The connection to credibility in sender-receiver games
under incomplete information is discussed. Applying our results to
Aumanns Stag Hunt game we find that communication is useless if talk is
about commitments, while the efficient outcome is selected if talk is about
intentions. This confirms intuition and empirical findings in the literature.

Arkadi Predtetchinski (joint with Jnos Flesch): Subgame-perfect
epsilon-equilibria in perfect information games with common preferences
at the limit

We extend and unify two theorems on the existence of subgame perfect
epsilon-equilibrium for games with perfect information. Flesch et al (2010)
show that a subgame perfect epsilon-equilibrium exists if every players'
payoff function is bounded and lower semicontinuous. Purves and
Sudderth (2011) prove that that a subgame perfect epsilon-equilibrium
exists if every players' payoff function is bounded and upper
semicontinuous. We introduce a new condition on payoff functions called
common preferences at the limit (CPL). We prove that that each perfect
information game with bounded CPL payoff functions has a subgame
perfect epsilon-equilibrium. If moreover the payoff functions have finite
range, then there also exists a subgame perfect 0-equilibrium. These
results encompass the theorems in Flesch et al and in Purves and
Sudderth as special cases.

References:

Flesch, J., Kuipers, J., Mashiah-Yaakovi, A., Schoenmakers, G., Solan, E.
and Vrieze, K. (2010): Perfect-information games with lower
semicontinuous payoffs. Mathematics of Operations Research 35, 742--
755.

Purves, R.A., and Sudderth, W.D. (2011): Perfect information games with
upper semicontinuous payoffs. Mathematics of Operations Research 36,
468--473.


Jacco Thijssen (with Marco Scarsini): Strategic Hypothesis Testing

In this paper we consider a game between two players who have to
choose between two actions. Both have access to a (possibly correlated)
sample which informs them about an unknown state of nature. The prior is
common knowledge while the posterior is not. We develop an equilibrium
concept hypothesis testing game and show existence. We argue that the
space from which samples are drawn can be interpreted as a universal
type space.

Marco Scarsini (joint with Tristan Tomala): Dynamic Congestion Games:
The Price of Seasonality

In this paper, we propose a model of discrete time dynamic congestion
games with atomic players and single source-destination pair. The
latencies of edges are composed of a free-flow transit time and possible
queuing time due to capacity constraints. This approach allows us to give a
precise description of the dynamics induced by the individual strategies of
players and to study how the steady state is reached, either when players
act selfishly, or when the traffic is controlled by a planner. Importantly,
we model seasonalities by assuming that departure flows fluctuate
periodically over time. Our contributions are two-fold.

First, we establish that socially optimal and equilibrium flows eventually
coincide, and according to the max-flow min-cut principle, send players at
capacity over the edges of minimal cuts of the network. However, queues
created by selfish players in early periods induce equilibrium costs that are
potentially much higher than optimal costs.

Second, we show that a periodic flow increases the socially optimal and
the equilibrium cost by the exact same amount, which measures the
queues due to seasonalities. This amount does not depend on the topology
of the graph and is characterized as a measure of periodic non-uniformity
of the departure flow.

Malgorzata Mitka (joint with Subir Chattopadhyay): Pure Strategy
Nash Equilibrium in an N-Country Trade Mode

Although strategic equilibria in tariff games have been studied for many
years, the analysis was often restricted to the case of two-country and
two-good economies; even so, little is known about the conditions that
ensure the existence of a pure strategy Nash equilibrium. We consider an
N-country two-good Cobb-Douglas model with country specific preferences
and arbitrary endowments. This allows us to look at the interactions
between asymmetric countries. We provide conditions on the primitives of
the model that ensure the existence of a pure strategy Nash equilibrium
and also show that Nash equilibria with prohibitive tariffs cannot arise.


Claudia Herresthal (Oxford): Mobility, Learning and School Choice

Market-based reform of the education sector is designed to induce schools
to compete for applicants by raising the quality of their educational
provision, thereby improving students educational performance. This
mechanism relies on families being able to distinguish between schools
based on their quality. This paper analyses how school choice affects
students educational performance when individuals are not perfectly
informed about exogenously determined school quality. Families infer
schools quality from school league tables which rank schools according to
their students performance. Students educational performance is
determined by the match between student ability and school quality. In a
dynamic environment, families base their school application on proximity
and on school rankings, which are in turn influenced by the match
between students and schools in previous generations. Comparative static
results are derived for the Bayesian-Nash equilibrium consistent with a
steady state informational value of league tables. Lower transport costs
increase the informational value of league tables, while allowing schools to
select students based on ability has ambiguous effects. At a higher
informational value demand for places is more sensitive to schools
performance and expenditure on transport increases. For uniformly
distributed transport costs, greater informational value is associated with
lower welfare.

Luigi Siciliani (with Miltiadis Makris): Should Incentive Schemes be
High-powered or Low-powered in the Presence of Motivated Agents?

Pay-for-performance schemes that reward higher output or measurable
dimensions of quality are increasingly advocated in the public sector. We
investigate the optimal power of incentive schemes to finance public-
service providers (eg in the health sector, education and child care) and
identify conditions under which the presence of motivated agents implies
that the power of optimal incentive schemes is high or low. The study
highlights the interplay between the degree of motivation and the
reservation utility. In the presence of symmetric information, we show that
if the reservation utility of the agent is sufficiently low (high), the break-
even (participation) constraint is binding and the optimal incentive scheme
has low (high) power. We also show that there is an intermediate range of
reservation utilities where both the participation and the break-even
constraint are binding. We further expand the analysis to account for
unobserved heterogeneity on both agents degree of motivation and
productivity. The three equilibria derived under symmetric information also
hold under asymmetric information when the principal is also concerned
about rent extraction. However, the relation between the power of the
incentive scheme and agents reservation utility can be reversed. The
optimal price can now be lower when the reservation utility is high.



Bernhard von Stengel: Recursive Inspection Games

Dresher (1962) described a sequential inspection game where an inspector
has to distribute a given number of inspections over a larger number of
inspection periods in order to detect an illegal act that an inspectee, who
can count the inspector's visits, performs in at most one of these periods.
We present an extension of this game where more than one illegal act is
allowed. Then, under certain reasonable assumptions for the zero-sum
payoffs, the optimal strategy of the inspector does not depend on the
number of intended illegal acts. This allows a recursive description.
The resulting recursive equation in three variables for the value of the
game, which generalizes several other known equations of this kind, is
solved explicitly, using numbers similar to binomial coefficients defined by
a "generalized Pascal triangle". We also extend this approach to non-zero-
sum games and, similar to Maschler (1966), "inspector leadership" where
the inspector commits to (the same) randomized inspection schedule, but
the inspectee acts legally (rather than mixes as in the simultaneous game)
as long as inspections remain.

Joel Sobel: Leaks

There are very few prosecutions of individuals who unlawfully release
classified documents. A recent law review article attributes this to a
deliberate policy because the existence of unsanctioned leaks makes
planted government disclosures more credible. I investigate the
conjecture and provide environments in which it does (and does not) hold.

Jingfeng Lu (with Bin Liu, Ruqu Wang, Jun Zhang): Optimal Contest
Design with Incomplete Information

In this paper, we analyze the optimal contest mechanism when the
abilities of the risk neutral contestants are independent private information.
The contest designer has a fixed prize budget, which can be used in a
contest mechanism that allows for positive and negative prizes. We find
that there exists no optimal contest mechanism which can maximize the
total efforts (or equivalent) from the contestants. Nevertheless, even
under the assumption of independent private information, both the full
rent extraction and the utmost total efforts (i.e. highest total efforts
inducible when all contestants are of the highest possible ability) can
almost be achieved by mechanisms involving exploding negative prizes.
When there is a bound (i.e. K) on the negative prizes, we fully characterize
the optimal contest mechanism and find that it can be implemented by a
modified all-pay auction with a minimum bid and a single prize consisting
of the entire prize augmented by an entry fee of K from each participant.
When all bids are below the required minimum bid, all players share a
positive prize equally or equivalently every player wins the prize with
equal probability.



Alexander Matros (with Alex Possajennikov): Common Value Allocation
Mechanisms with Private Information: Lotteries or Auctions?

We consider mechanisms for allocating a common-value prize between
two players in an incomplete information setting. In this setting, each
player receives an independent private signal about the prize value. The
signals are from a discrete distribution and the value is increasing in both
signals. First, we characterize symmetric equilibria in four mechanisms: a
lottery; and first-price, second-price, and all-pay auctions. Second, we
establish revenue equivalence of these auction mechanisms in this setting.
Third, we describe conditions under which the expected revenue is higher
in the lottery than in any of the auctions. Finally, we identify an optimal
mechanism and its implementation by means of reserve prices in lottery
and auction mechanisms.

Zhiyun Li (joint with Ian Jewitt): Cheap-Talk Information Disclosure in
Auctions

This paper investigates cheap-talk information disclosure in auctions
where bidders' preferences are horizontally differentiated. Bidders'
valuations depend on the matching between their preferences and product
attributes. The seller may reveal information of product attributes before
the auction, and the disclosure policy is characterized by a partition of the
attribute space. We prove that, under cheap-talk, an informative
equilibrium is supportable by a partition of any degree, as long as the
number of bidders is sufficiently large. Second, in a symmetric setting,
informative equilibria reveal the feature that more precise information is
provided for less popular attributes, and when the number of bidders
approaches infinity, equilibrium partitions converge to equal partitions.
Finally, the optimal disclosure policy demonstrates a complementarity
relationship between the optimal degree of equilibrium partitions and the
number of bidders in the auction. We also compare the cheap-talk results
with those under full commitment to truthful disclosure.

Paul Schweinzer (with Alex Gershkov and Jianpei Li): How to share it
out: The value of information in teams

We study the role of information exchange, leadership and coordination in
team or partnership structures. For this purpose, we view individuals
jointly engaging in productive processes--a 'team'--as endowed with
individual and privately held information on the joint production process.
Once individual information is shared, team members decide individually
on the effort they exert in the joint production process. This effort,
however, is not contractible; only the joint output (or profit) of the team
can be observed. Our central question is whether or not incentives can be
provided to a team in this environment such that team members
communicate their private information and exert efficient productive
efforts on the basis of this communication. Our main result shows that
there exists a simple ranking-based contract which implements both
desiderata in a wide set of situations.



Fabrizio Germano (joint with Peio Zuazo-Garin): Bounded Rationality
and Correlated Equilibria

We extend the framework in Aumann (1987) to explicitly allow for non-
rational behavior, and show its robustness and continuity to bounded
rationality. We do so by considering information structures that encode
substantial weakenings of the notions of rationality and common
knowledge of rationality, typically assumed in game theory. For arbitrary
p [0; 1]
I
, we define p-rational outcomes as distributions of play, where
players believe that others play rationally with probability p or more, with
no specific restrictions placed when believed to play non-rationally. We
then characterize the set of all p-rational outcomes in terms of what we
call (X; p)-correlated equilibria, a broader notion of correlated equilibrium
that allows to weaken the incentive constraints, and which yields simple
and computationally convenient representations. The characterization is
also extended to games of incomplete information.

Anindya Bhattacharya (with Debapriya Sen): Policy and Multinational
Firms: the Race to the Bottom Revisited

This paper revisits the phenomenon of race to the bottom in
labour markets in a model of strategic interaction with one
monoposonist firm and two countries. The firm has to employ labour
from both countries for its production and it has a constant elasticity
of substitution production function. Each country seeks to maximize
its labour income. The countries simultaneously announce wages,
following which the firm chooses its labour input in each country.
The wages are bounded above and below, where the lower bound
stands for the minimum wage prevailing in a country and the upper
bound is the maximum wage acceptable to the firm. It is shown that
there is no equilibrium with race to the bottom (i.e., both
countries setting the minimum wage). Depending on the
substitutability of the labour inputs of two countries, it is possible to
have equilibrium where race to the bottom (i.e. both countries
setting the maximum wage) takes place.

Zaifu Yang (with Bo Chen and Satoru Fujishige): Decentralized
Market Processes to Stable Job Matchings with Competitive Salaries

We analyze a decentralized process in a basic labor market where finitely
many heterogeneous firms and workers meet directly and randomly, and
negotiate salaries with each other over time. Firms and workers may not
have a complete picture of the entire market and can thus behave
myopically in the process. Our main result establishes that, starting from
an arbitrary market state of a matching of firms and workers and a vector
of payoff s, a general random market process where each possible
bilateral trade arises with positive probability converges with probability


one to a competitive equilibrium of the market. An important auxiliary step
toward this result is a novel construction of a finite sequence of successive
bilateral trades that leads an arbitrary initial market state to a stable
matching between firms and workers with a scheme of competitive salary
offers.

Cheng-Zhong Qin: Advances in Bargaining Theory

YorkProgramme 2014

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