Journal Description
Games
Games
is a scholarly, peer-reviewed, open access journal of strategic interaction, game theory and decision-making published quarterly online by MDPI.
- Open Access— free for readers, with article processing charges (APC) paid by authors or their institutions.
- High Visibility: indexed within Scopus, ESCI (Web of Science), MathSciNet, zbMATH, RePEc, EconLit, EconBiz, and many other databases.
- Rapid Publication: manuscripts are peer-reviewed and a first decision provided to authors approximately 18 days after submission; acceptance to publication is undertaken in 6.8 days (median values for papers published in this journal in the first half of 2021).
- Recognition of Reviewers: reviewers who provide timely, thorough peer-review reports receive vouchers entitling them to a discount on the APC of their next publication in any MDPI journal, in appreciation of the work done.
Latest Articles
Cooperative Game for Fish Harvesting and Pollution Control
Games 2021, 12(3), 65; https://doi.org/10.3390/g12030065 - 19 Aug 2021
Abstract
This paper studies fishery strategies in lakes, seas, and shallow rivers subject to agricultural and industrial pollution. The flowing pollutants are modeled by a nonlinear differential equation in a general manner. The logistic growth model for the fish population is modified to cover
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This paper studies fishery strategies in lakes, seas, and shallow rivers subject to agricultural and industrial pollution. The flowing pollutants are modeled by a nonlinear differential equation in a general manner. The logistic growth model for the fish population is modified to cover the pollution impact on the fish growth rate. We start by presenting the stability analysis of the dynamical system to discern the different types of the evolution of the fish population according to human actions. A cooperative game is formulated to design strategies for preserving the fish population by controlling the pollution as well as the fish stock for harvesting. The sufficient conditions for implementing the cooperative strategy are investigated through an incentive design approach with an adaptive taxation policy for the players. Numerical results are presented to illustrate the benefit of the cooperative for fish population preservation but also for the players’ rewards.
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(This article belongs to the Section Cooperative Game Theory and Bargaining)
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Invitation Games: An Experimental Approach to Coalition Formation
Games 2021, 12(3), 64; https://doi.org/10.3390/g12030064 - 17 Aug 2021
Abstract
This paper studies how to form an efficient coalition—a group of people. More specifically, we compare two mechanisms for forming a coalition by running a laboratory experiment and reveal which mechanism leads to higher social surplus. In one setting, we invite the subjects
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This paper studies how to form an efficient coalition—a group of people. More specifically, we compare two mechanisms for forming a coalition by running a laboratory experiment and reveal which mechanism leads to higher social surplus. In one setting, we invite the subjects to join a meeting simultaneously, so they cannot know the other subjects’ decisions. In the other setting, we ask them sequentially, which allows each subject to know his or her predecessor’s choice. Those who decide to join the meeting form a coalition and earn payoffs according to their actions and individual preferences. As a result, we obtain the following findings. First, the sequential mechanism induces higher social surplus than the simultaneous mechanism. Second, most subjects make choices consistent with the subgame-perfect Nash equilibrium in the sequential setting and choose the dominant strategy in the simultaneous setting, when a dominant strategy exists. Finally, when the subjects need to look further ahead to make a theoretically rational choice, they are more likely to fail to choose rationally.
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(This article belongs to the Special Issue Behavioral Coalition Formation: Theory and Experiments)
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Punishment Strategies across Societies: Conventional Wisdoms Reconsidered
by
and
Games 2021, 12(3), 63; https://doi.org/10.3390/g12030063 - 01 Aug 2021
Abstract
Experiments using the public goods game have repeatedly shown that in cooperative social environments, punishment makes cooperation flourish, and withholding punishment makes cooperation collapse. In less cooperative social environments, where antisocial punishment has been detected, punishment was detrimental to cooperation. The success of
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Experiments using the public goods game have repeatedly shown that in cooperative social environments, punishment makes cooperation flourish, and withholding punishment makes cooperation collapse. In less cooperative social environments, where antisocial punishment has been detected, punishment was detrimental to cooperation. The success of punishment in enhancing cooperation was explained as deterrence of free riders by cooperative strong reciprocators, who were willing to pay the cost of punishing them, whereas in environments in which punishment diminished cooperation, antisocial punishment was explained as revenge by low cooperators against high cooperators suspected of punishing them in previous rounds. The present paper reconsiders the generality of both explanations. Using data from a public goods experiment with punishment, conducted by the authors on Israeli subjects (Study 1), and from a study published in Science using sixteen participant pools from cities around the world (Study 2), we found that: 1. The effect of punishment on the emergence of cooperation was mainly due to contributors increasing their cooperation, rather than from free riders being deterred. 2. Participants adhered to different contribution and punishment strategies. Some cooperated and did not punish (‘cooperators’); others cooperated and punished free riders (‘strong reciprocators’); a third subgroup punished upward and downward relative to their own contribution (‘norm-keepers’); and a small sub-group punished only cooperators (‘antisocial punishers’). 3. Clear societal differences emerged in the mix of the four participant types, with high-contributing pools characterized by higher ratios of ‘strong reciprocators’, and ‘cooperators’, and low-contributing pools characterized by a higher ratio of ‘norm keepers’. 4. The fraction of ‘strong reciprocators’ out of the total punishers emerged as a strong predictor of the groups’ level of cooperation and success in providing the public goods.
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(This article belongs to the Special Issue Pro-sociality and Cooperation)
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Champ versus Chump: Viewing an Opponent’s Face Engages Attention but Not Reward Systems
Games 2021, 12(3), 62; https://doi.org/10.3390/g12030062 - 31 Jul 2021
Abstract
When we play competitive games, the opponents that we face act as predictors of the outcome of the game. For instance, if you are an average chess player and you face a Grandmaster, you anticipate a loss. Framed in a reinforcement learning perspective,
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When we play competitive games, the opponents that we face act as predictors of the outcome of the game. For instance, if you are an average chess player and you face a Grandmaster, you anticipate a loss. Framed in a reinforcement learning perspective, our opponents can be thought of as predictors of rewards and punishments. The present study investigates whether facing an opponent would be processed as a reward or punishment depending on the level of difficulty the opponent poses. Participants played Rock, Paper, Scissors against three computer opponents while electroencephalographic (EEG) data was recorded. In a key manipulation, one opponent (HARD) was programmed to win most often, another (EASY) was made to lose most often, and the third (AVERAGE) had equiprobable outcomes of wins, losses, and ties. Through practice, participants learned to anticipate the relative challenge of a game based on the opponent they were facing that round. An analysis of our EEG data revealed that winning outcomes elicited a reward positivity relative to losing outcomes. Interestingly, our analysis of the predictive cues (i.e., the opponents’ faces) demonstrated that attentional engagement (P3a) was contextually sensitive to anticipated game difficulty. As such, our results for the predictive cue are contrary to what one might expect for a reinforcement model associated with predicted reward, but rather demonstrate that the neural response to the predictive cue was encoding the level of engagement with the opponent as opposed to value relative to the anticipated outcome.
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(This article belongs to the Special Issue Psychological Perspectives on Simple Games)
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Mechanism Design for Demand Management in Energy Communities
Games 2021, 12(3), 61; https://doi.org/10.3390/g12030061 - 31 Jul 2021
Abstract
We consider a demand management problem in an energy community, in which several users obtain energy from an external organization such as an energy company and pay for the energy according to pre-specified prices that consist of a time-dependent price per unit of
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We consider a demand management problem in an energy community, in which several users obtain energy from an external organization such as an energy company and pay for the energy according to pre-specified prices that consist of a time-dependent price per unit of energy as well as a separate price for peak demand. Since users’ utilities are their private information, which they may not be willing to share, a mediator, known as the planner, is introduced to help optimize the overall satisfaction of the community (total utility minus total payments) by mechanism design. A mechanism consists of a message space, a tax/subsidy, and an allocation function for each user. Each user reports a message chosen from her own message space, then receives some amount of energy determined by the allocation function, and pays the tax specified by the tax function. A desirable mechanism induces a game, the Nash equilibria (NE), of which results in an allocation that coincides with the optimal allocation for the community. As a starting point, we design a mechanism for the energy community with desirable properties such as full implementation, strong budget balance and individual rationality for both users and the planner. We then modify this baseline mechanism for communities where message exchanges are allowed only within neighborhoods, and consequently, the tax/subsidy and allocation functions of each user are only determined by the messages from their neighbors. All of the desirable properties of the baseline mechanism are preserved in the distributed mechanism. Finally, we present a learning algorithm for the baseline mechanism, based on projected gradient descent, that is guaranteed to converge to the NE of the induced game.
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(This article belongs to the Special Issue Social and Economic Networks)
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Consensus towards Partially Cooperative Strategies in Self-Regulated Evolutionary Games on Networks
by
and
Games 2021, 12(3), 60; https://doi.org/10.3390/g12030060 - 29 Jul 2021
Abstract
Cooperation is widely recognized to be fundamental for the well-balanced development of human societies. Several different approaches have been proposed to explain the emergence of cooperation in populations of individuals playing the Prisoner’s Dilemma game, characterized by two concurrent natural mechanisms: the temptation
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Cooperation is widely recognized to be fundamental for the well-balanced development of human societies. Several different approaches have been proposed to explain the emergence of cooperation in populations of individuals playing the Prisoner’s Dilemma game, characterized by two concurrent natural mechanisms: the temptation to defect and the fear to be betrayed by others. Few results are available for analyzing situations where only the temptation to defect (Chicken game) or the fear to be betrayed (Stag-Hunt game) is present. In this paper, we analyze the emergence of full and partial cooperation for these classes of games. We find the conditions for which these Nash equilibria are asymptotically stable, and we show that the partial one is also globally stable. Furthermore, in the Chicken and Stag-Hunt games, partial cooperation has been found to be more rewarding than the full one of the Prisoner’s Dilemma game. This result highlights the importance of such games for understanding and sustaining different levels of cooperation in social networks.
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(This article belongs to the Special Issue Game Theory in Social Networks)
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Self-Enforcing Price Leadership
Games 2021, 12(3), 59; https://doi.org/10.3390/g12030059 - 29 Jul 2021
Abstract
A dynamic Bertrand-duopoly model where price leadership emerges in equilibrium is developed. In the price leadership equilibrium, a firm leads price changes and its competitor always matches in the next period. The firms produce a homogeneous product and are identical except for the
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A dynamic Bertrand-duopoly model where price leadership emerges in equilibrium is developed. In the price leadership equilibrium, a firm leads price changes and its competitor always matches in the next period. The firms produce a homogeneous product and are identical except for the information they possess about demand. The market size follows a two-state Markov process. Market size realizations are observed by one of the firms but not the other. Without explicit communication, price leadership allows firms to jointly approximate monopolistic profits in equilibrium as the market size becomes more persistent provided that firms are patient. In the presence of persistent market dynamics, the informed firm’s price serves as a signal of current and therefore future market conditions. In the proposed price leadership equilibrium, the informed firm could cut prices without being detected, but it does not do so because it would lead the uninformed to also lower their price in the following period.
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(This article belongs to the Special Issue Communication, Cartels and Collusion)
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Intentions versus Outcomes: Cooperation and Fairness in a Sequential Prisoner’s Dilemma with Nature
Games 2021, 12(3), 58; https://doi.org/10.3390/g12030058 - 22 Jul 2021
Abstract
This paper investigates the importance of concerns about intentions and outcomes in a sequential prisoner’s dilemma game with nature. In the game, there is a chance that the first mover’s choice is reversed. This allows the separation of intended actions from the resulting
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This paper investigates the importance of concerns about intentions and outcomes in a sequential prisoner’s dilemma game with nature. In the game, there is a chance that the first mover’s choice is reversed. This allows the separation of intended actions from the resulting outcomes. Equilibrium predictions from theoretical models of fairness are tested experimentally by varying the chance the first mover’s choice is reversed and whether the second mover observes the first mover’s choice. The results show that second mover cooperation is higher when the first mover has little control over their choice and when the second mover is not told what the first mover chose. While subject behavior is consistent with concerns for both intentions and outcomes, the results indicate that these concerns work in ways not predicted by current theoretical models. In addition, I find that psychometric measures of empathic concern and perspective taking are correlated with second mover cooperation and provide potential explanations for the experimental results.
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(This article belongs to the Section Behavioral and Experimental Game Theory)
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Open AccessCommunication
A Note on Numerical Representations of Nested System of Strict Partial Orders
by
Games 2021, 12(3), 57; https://doi.org/10.3390/g12030057 - 07 Jul 2021
Abstract
This note provides two numerical representations of a nested system of strict partial orders. The first representation is based on utility and threshold functions. We generalize the threshold representation of menu-dependent preferences by allowing the threshold to depend not only on the menu
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This note provides two numerical representations of a nested system of strict partial orders. The first representation is based on utility and threshold functions. We generalize the threshold representation of menu-dependent preferences by allowing the threshold to depend not only on the menu but also on the pair of alternatives under comparison. The threshold function can be interpreted as the distance between alternatives. The second representation is based on the aggregation of multi-dimensional preference. This representation describes a decision-making procedure where multiple criteria are gradually aggregated into an overall assessment.
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(This article belongs to the Special Issue Developing and Testing Theories of Decision Making)
Open AccessArticle
Horizon-K Farsightedness in Criminal Networks
Games 2021, 12(3), 56; https://doi.org/10.3390/g12030056 - 05 Jul 2021
Abstract
We study the criminal networks that will emerge in the long run when criminals are neither myopic nor completely farsighted but have some limited degree of farsightedness. We adopt the horizon-K farsighted set to answer this question. We find that in criminal
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We study the criminal networks that will emerge in the long run when criminals are neither myopic nor completely farsighted but have some limited degree of farsightedness. We adopt the horizon-K farsighted set to answer this question. We find that in criminal networks with n criminals, the set consisting of the complete network is a horizon-K farsighted set whenever the degree of farsightedness of the criminals is larger than or equal to . Moreover, the complete network is the unique horizon- farsighted set. Hence, the predictions obtained in case of completely farsighted criminals still hold when criminals are much less farsighted.
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(This article belongs to the Special Issue Game Theory in Social Networks)
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The Evolution of Networks and Local Public Good Provision: A Potential Approach
Games 2021, 12(3), 55; https://doi.org/10.3390/g12030055 - 02 Jul 2021
Cited by 1
Abstract
In this paper, we propose a game in which each player decides with whom to establish a costly connection and how much local public good is provided when benefits are shared among neighbors. We show that, when agents are homogeneous, Nash equilibrium networks
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In this paper, we propose a game in which each player decides with whom to establish a costly connection and how much local public good is provided when benefits are shared among neighbors. We show that, when agents are homogeneous, Nash equilibrium networks are nested split graphs. Additionally, we show that the game is a potential game, even when we introduce heterogeneity along several dimensions. Using this result, we introduce stochastic best reply dynamics and show that this admits a unique and stationary steady state distribution expressed in terms of the potential function of the game. Hence, even if the set of Nash equilibria is potentially very large, the long run predictions are sharp.
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(This article belongs to the Special Issue Game Theory in Social Networks)
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Validating Game-Theoretic Models of Terrorism: Insights from Machine Learning
Games 2021, 12(3), 54; https://doi.org/10.3390/g12030054 - 30 Jun 2021
Abstract
There are many competing game-theoretic analyses of terrorism. Most of these models suggest nonlinear relationships between terror attacks and some variable of interest. However, to date, there have been very few attempts to empirically sift between competing models of terrorism or identify nonlinear
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There are many competing game-theoretic analyses of terrorism. Most of these models suggest nonlinear relationships between terror attacks and some variable of interest. However, to date, there have been very few attempts to empirically sift between competing models of terrorism or identify nonlinear patterns. We suggest that machine learning can be an effective way of undertaking both. This feature can help build more salient game-theoretic models to help us understand and prevent terrorism.
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(This article belongs to the Special Issue Economics of Conflict and Terrorism)
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Competing Conventions with Costly Information Acquisition
Games 2021, 12(3), 53; https://doi.org/10.3390/g12030053 - 25 Jun 2021
Abstract
We consider an evolutionary model of social coordination in a 2 × 2 game where two groups of players prefer to coordinate on different actions. Players can pay a cost to learn their opponent’s group: if they pay it, they can condition their
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We consider an evolutionary model of social coordination in a 2 × 2 game where two groups of players prefer to coordinate on different actions. Players can pay a cost to learn their opponent’s group: if they pay it, they can condition their actions concerning the groups. We assess the stability of outcomes in the long run using stochastic stability analysis. We find that three elements matter for the equilibrium selection: the group size, the strength of preferences, and the information’s cost. If the cost is too high, players never learn the group of their opponents in the long run. If one group is stronger in preferences for its favorite action than the other, or its size is sufficiently large compared to the other group, every player plays that group’s favorite action. If both groups are strong enough in preferences, or if none of the groups’ sizes is large enough, players play their favorite actions and miscoordinate in inter-group interactions. Lower levels of the cost favor coordination. Indeed, when the cost is low, in inside-group interactions, players always coordinate on their favorite action, while in inter-group interactions, they coordinate on the favorite action of the group that is stronger in preferences or large enough.
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(This article belongs to the Special Issue Social Coordination Games)
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Rock-Paper-Scissors Play: Beyond the Win-Stay/Lose-Change Strategy
Games 2021, 12(3), 52; https://doi.org/10.3390/g12030052 - 22 Jun 2021
Abstract
This research studied the strategies that players use in sequential adversarial games. We took the Rock-Paper-Scissors (RPS) game as an example and ran players in two experiments. The first experiment involved two humans, who played the RPS together for 100 times. Importantly, our
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This research studied the strategies that players use in sequential adversarial games. We took the Rock-Paper-Scissors (RPS) game as an example and ran players in two experiments. The first experiment involved two humans, who played the RPS together for 100 times. Importantly, our payoff design in the RPS allowed us to differentiate between participants who used a random strategy from those who used a Nash strategy. We found that participants did not play in agreement with the Nash strategy, but rather, their behavior was closer to random. Moreover, the analyses of the participants’ sequential actions indicated heterogeneous cycle-based behaviors: some participants’ actions were independent of their past outcomes, some followed a well-known win-stay/lose-change strategy, and others exhibited the win-change/lose-stay behavior. To understand the sequential patterns of outcome-dependent actions, we designed probabilistic computer algorithms involving specific change actions (i.e., to downgrade or upgrade according to the immediate past outcome): the Win-Downgrade/Lose-Stay (WDLS) or Win-Stay/Lose-Upgrade (WSLU) strategies. Experiment 2 used these strategies against a human player. Our findings show that participants followed a win-stay strategy against the WDLS algorithm and a lose-change strategy against the WSLU algorithm, while they had difficulty in using an upgrade/downgrade direction, suggesting humans’ limited ability to detect and counter the actions of the algorithm. Taken together, our two experiments showed a large diversity of sequential strategies, where the win-stay/lose-change strategy did not describe the majority of human players’ dynamic behaviors in this adversarial situation.
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(This article belongs to the Special Issue Psychological Perspectives on Simple Games)
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Brexit and Power in the Council of the European Union
Games 2021, 12(2), 51; https://doi.org/10.3390/g12020051 - 21 Jun 2021
Abstract
The exit of the United Kingdom from the European Union has had profound economic and political effects. Here, we look at a particular aspect, the power distribution in the Council of the European Union. Using the Shapley–Shubik power index, we calculate the member
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The exit of the United Kingdom from the European Union has had profound economic and political effects. Here, we look at a particular aspect, the power distribution in the Council of the European Union. Using the Shapley–Shubik power index, we calculate the member states’ powers with and without the United Kingdom and update earlier power forecasts using the Eurostat’s latest population projections. There is a remarkably sharp relation between population size and the change in power: Brexit increases the largest members’ powers while decreasing the smallest ones’ powers.
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(This article belongs to the Special Issue Weighted Majority Voting Games)
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Self-Governance in Generalized Exchange. A Laboratory Experiment on the Structural Embeddedness of Peer Punishment
Games 2021, 12(2), 50; https://doi.org/10.3390/g12020050 - 10 Jun 2021
Abstract
Peer punishment is widely lauded as a decentralized solution to the problem of social cooperation. However, experimental evidence of its effectiveness primarily stems from public good structures. This paper explores peer punishment in another structural setting: a system of generalized exchange. In a
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Peer punishment is widely lauded as a decentralized solution to the problem of social cooperation. However, experimental evidence of its effectiveness primarily stems from public good structures. This paper explores peer punishment in another structural setting: a system of generalized exchange. In a laboratory experiment, a repeated four-player prisoner’s dilemma is arranged either in a public good structure or in a circular network of generalized exchange. The experimental results demonstrate that the merits of peer punishment do not extend to generalized exchange. In the public good, peer punishment was primarily altruistic, was sensitive to costs, and promoted cooperation. In generalized exchange, peer punishment was also altruistic and relatively frequent, but did not increase cooperation. While the dense punishment network underlying the public good facilitates norm enforcement, generalized exchange decreases control over norm violators and reduces the capacity of peer punishment. I conclude that generalized exchange systems require stronger forms of punishment to sustain social cooperation.
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(This article belongs to the Special Issue Advances in Research on Social Dilemmas)
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Evolutionary Dynamics of Gig Economy Labor Strategies under Technology, Policy and Market Influence
Games 2021, 12(2), 49; https://doi.org/10.3390/g12020049 - 10 Jun 2021
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The emergence of the modern gig economy introduces a new set of employment considerations for firms and laborers that include various trade-offs. With a game-theoretical approach, we examine the influences of technology, policy and markets on firm and worker preferences for gig labor.
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The emergence of the modern gig economy introduces a new set of employment considerations for firms and laborers that include various trade-offs. With a game-theoretical approach, we examine the influences of technology, policy and markets on firm and worker preferences for gig labor. Theoretically, we present new conceptual extensions to the replicator equation and model oscillating dynamics in two-player asymmetric bi-matrix games with time-evolving environments, introducing concepts of the attractor arc, trapping zone and escape. While canonical applications of evolutionary game theory focus on the evolutionary stable strategy, our model assumes that the system exhibits oscillatory dynamics and can persist for long temporal intervals in a pseudo-stable state. We demonstrate how changing market conditions result in distinct evolutionary patterns across labor economies. Informing tensions regarding the future of this new employment category, we present a novel payoff framework to analyze the role of technology on the growth of the gig economy. Regarding governance, we explore regulatory implications within the gig economy, demonstrating how intervals of lenient and strict policy alter firm and worker sensitivities between gig and employee labor strategies. Finally, we establish an aggregate economic framework to explain how technology, policy and market environments engage in an interlocking dance, a balancing act, to sustain the observable co-existence of gig and employee labor strategies.
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Is Voting for a Cartel a Sign of Cooperativeness?
by
Games 2021, 12(2), 48; https://doi.org/10.3390/g12020048 - 01 Jun 2021
Abstract
This paper tests the hypothesis that a (partial) reason why cartels—collective but costly and non-binding price agreements—lead to higher prices in a Bertrand oligopoly could be because of a selection effect: decision-makers who are willing to form price agreements are more likely to
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This paper tests the hypothesis that a (partial) reason why cartels—collective but costly and non-binding price agreements—lead to higher prices in a Bertrand oligopoly could be because of a selection effect: decision-makers who are willing to form price agreements are more likely to be less competitive and pick higher prices in general. To test this hypothesis we run an experiment where participants play two consecutive Bertrand pricing games: first a standard version without the opportunity to form agreements; followed by a version where participants can vote whether to have a (costly) non-binding agreement as a group to pick the highest number. We find no statistically significant difference between the numbers picked in the first game by participants who vote for and against an agreement in the second game. We do confirm that having a non-binding agreement to cooperate leads to higher numbers being picked on average. Both participants who voted for and against the agreement increase the number they pick in situations with an agreement. However, this effect is bigger for participants who voted in favour.
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(This article belongs to the Special Issue Pro-sociality and Cooperation)
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Algorithm for Computing Approximate Nash Equilibrium in Continuous Games with Application to Continuous Blotto
Games 2021, 12(2), 47; https://doi.org/10.3390/g12020047 - 01 Jun 2021
Abstract
Successful algorithms have been developed for computing Nash equilibrium in a variety of finite game classes. However, solving continuous games—in which the pure strategy space is (potentially uncountably) infinite—is far more challenging. Nonetheless, many real-world domains have continuous action spaces, e.g., where actions
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Successful algorithms have been developed for computing Nash equilibrium in a variety of finite game classes. However, solving continuous games—in which the pure strategy space is (potentially uncountably) infinite—is far more challenging. Nonetheless, many real-world domains have continuous action spaces, e.g., where actions refer to an amount of time, money, or other resource that is naturally modeled as being real-valued as opposed to integral. We present a new algorithm for approximating Nash equilibrium strategies in continuous games. In addition to two-player zero-sum games, our algorithm also applies to multiplayer games and games with imperfect information. We experiment with our algorithm on a continuous imperfect-information Blotto game, in which two players distribute resources over multiple battlefields. Blotto games have frequently been used to model national security scenarios and have also been applied to electoral competition and auction theory. Experiments show that our algorithm is able to quickly compute close approximations of Nash equilibrium strategies for this game.
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(This article belongs to the Special Issue Economics of Conflict and Terrorism)
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Spoofing the Limit Order Book: A Strategic Agent-Based Analysis
Games 2021, 12(2), 46; https://doi.org/10.3390/g12020046 - 24 May 2021
Cited by 1
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We present an agent-based model of manipulating prices in financial markets through spoofing: submitting spurious orders to mislead traders who learn from the order book. Our model captures a complex market environment for a single security, whose common value is given by
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We present an agent-based model of manipulating prices in financial markets through spoofing: submitting spurious orders to mislead traders who learn from the order book. Our model captures a complex market environment for a single security, whose common value is given by a dynamic fundamental time series. Agents trade through a limit-order book, based on their private values and noisy observations of the fundamental. We consider background agents following two types of trading strategies: the non-spoofable zero intelligence (ZI) that ignores the order book and the manipulable heuristic belief learning (HBL) that exploits the order book to predict price outcomes. We conduct empirical game-theoretic analysis upon simulated agent payoffs across parametrically different environments and measure the effect of spoofing on market performance in approximate strategic equilibria. We demonstrate that HBL traders can benefit price discovery and social welfare, but their existence in equilibrium renders a market vulnerable to manipulation: simple spoofing strategies can effectively mislead traders, distort prices and reduce total surplus. Based on this model, we propose to mitigate spoofing from two aspects: (1) mechanism design to disincentivize manipulation; and (2) trading strategy variations to improve the robustness of learning from market information. We evaluate the proposed approaches, taking into account potential strategic responses of agents, and characterize the conditions under which these approaches may deter manipulation and benefit market welfare. Our model provides a way to quantify the effect of spoofing on trading behavior and market efficiency, and thus it can help to evaluate the effectiveness of various market designs and trading strategies in mitigating an important form of market manipulation.
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External Validity and Choice-Process Data of Lab Measures on Social Preference Games
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Donors' Contributions in Settings with Multiple Options
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Social Coordination Games
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