Games

43 pages, 3198 KB

Open AccessEditor’s ChoiceArticle

Spoofing the Limit Order Book: A Strategic Agent-Based Analysis

by Xintong Wang, Christopher Hoang, Yevgeniy Vorobeychik and Michael P. Wellman

Games 2021, 12(2), 46; https://doi.org/10.3390/g12020046 - 24 May 2021

Cited by 15 | Viewed by 18325

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 [...] Read more.

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. Full article

► Show Figures

Figure 1

7 pages, 397 KB

Open AccessEditor’s ChoiceArticle

Collaboration and Gender Focality in Stag Hunt Bargaining

by Geraldine Guarin and J. Jobu Babin

Games 2021, 12(2), 39; https://doi.org/10.3390/g12020039 - 6 May 2021

Cited by 10 | Viewed by 3700

Abstract

Knowing the gender of a counterpart can be focal in the willingness to collaborate in team settings that resemble the classic coordination problem. This paper explores whether knowing a co-worker’s gender affects coordination on the mutually beneficial outcome in a socially risky environment. [...] Read more.

Knowing the gender of a counterpart can be focal in the willingness to collaborate in team settings that resemble the classic coordination problem. This paper explores whether knowing a co-worker’s gender affects coordination on the mutually beneficial outcome in a socially risky environment. In an experimental setting, subjects play a one-shot stag hunt game framed as a collaborative task in which they can “work together” or “work alone.” We exogenously vary whether workers know the gender of their counterparts pre-play. When gender is revealed, female players tend to gravitate to collaboration and efficient coordination regardless of the knowledge. Males, when knowingly paired with another male, tend to collaborate less, and thus, are less likely to coordinate on the Pareto optimal outcome. These results demonstrate one way that gender focality can lead to inefficient outcomes and provide insight for organizations looking to induce collaboration among workers. Full article

► Show Figures

Figure 1

31 pages, 2065 KB

Open AccessEditor’s ChoiceArticle

The Effect of Disclosing Identities in a Socially Incentivized Public Good Game

by Britta Butz and Christine Harbring

Games 2021, 12(2), 32; https://doi.org/10.3390/g12020032 - 9 Apr 2021

Cited by 5 | Viewed by 5562

Abstract

We investigate whether revealing the identities in a public good game that includes a donation incentive leads to higher contributions to the public good. Previous evidence suggests that contributions to a public good increase significantly when these take place in public. Also, the [...] Read more.

We investigate whether revealing the identities in a public good game that includes a donation incentive leads to higher contributions to the public good. Previous evidence suggests that contributions to a public good increase significantly when these take place in public. Also, the amount of money given in charitable donations seems to be sensitive to the revealing of identities. Using a laboratory experiment, we implement a 20% donation share that is dependent on participants’ contributions to a public good. The donation is either costless (because it is financed by the experimenter) or deducted from a team’s contributions. In both settings, we explore whether informing participants that group members’ identities will be disclosed at the end of the experiment leads to higher contributions to the public good. Non-parametric statistics indicate that when donations are costly for the participants, the announcement of subsequent identity disclosure results in significantly higher contributions in the second half of the repeated public good game. In contrast, revealing identities in settings with costless donations reduces contributions to the public good significantly. The regression results indicate that conditional cooperators might be one subgroup driving these results. Full article

(This article belongs to the Special Issue Pro-sociality and Cooperation)

► Show Figures

Figure 1

22 pages, 337 KB

Open AccessEditor’s ChoiceArticle

Optimal Incentives Schemes under Homo Moralis Preferences

by Roberto Sarkisian

Games 2021, 12(1), 28; https://doi.org/10.3390/g12010028 - 19 Mar 2021

Cited by 2 | Viewed by 3114

Abstract

This study focuses on the optimal incentive schemes in a multi-agent moral hazard model, where each agent has other-regarding preferences and an individual measure of output, with both being observable by the principal. In particular, the two agents display homo moralis preferences. I [...] Read more.

This study focuses on the optimal incentive schemes in a multi-agent moral hazard model, where each agent has other-regarding preferences and an individual measure of output, with both being observable by the principal. In particular, the two agents display homo moralis preferences. I find that, contrary to the case with purely selfish preferences, tournaments can never be optimal when agents are risk averse, and as the degree of morality increases, positive payments are made in a larger number of output realizations. Furthermore, I extend the analysis to a dynamic setting, in which a contract is initially offered to the agents, who then repeatedly choose which level of effort to provide in each period. I show that the optimal incentive schemes in this case are similar to the ones obtained in the static setting, but for the role of intertemporal discounting. Full article

11 pages, 1100 KB

Open AccessEditor’s ChoiceArticle

Teams Do Inflict Costly Third-Party Punishment as Individuals Do: Experimental Evidence

by Kenju Kamei

Games 2021, 12(1), 22; https://doi.org/10.3390/g12010022 - 3 Mar 2021

Cited by 3 | Viewed by 3949

Abstract

Initiated by the seminal work of Fehr and Fischbacher (Evolution and Human Behavior (2004)), a large body of research has shown that people often take punitive actions towards norm violators even when they are not directly involved in transactions. This paper shows in [...] Read more.

Initiated by the seminal work of Fehr and Fischbacher (Evolution and Human Behavior (2004)), a large body of research has shown that people often take punitive actions towards norm violators even when they are not directly involved in transactions. This paper shows in an experimental setting that this behavioral finding extends to a situation where a pair of individuals jointly decides how strong a third-party punishment to impose. It also shows that this punishment behavior is robust to the size of social distance within pairs. These results lend useful insight since decisions in our everyday lives and also in courts are often made by teams. Full article

(This article belongs to the Special Issue Behavioral Coalition Formation: Theory and Experiments)

► Show Figures

Figure 1

16 pages, 455 KB

Open AccessEditor’s ChoiceArticle

A Generalization of Quantal Response Equilibrium via Perturbed Utility

by Roy Allen and John Rehbeck

Games 2021, 12(1), 20; https://doi.org/10.3390/g12010020 - 1 Mar 2021

Cited by 6 | Viewed by 4251

Abstract

We present a tractable generalization of quantal response equilibrium via non-expected utility preferences. In particular, we introduce concave perturbed utility games in which an individual has strategy-specific utility indices that depend on the outcome of the game and an additively separable preference to [...] Read more.

We present a tractable generalization of quantal response equilibrium via non-expected utility preferences. In particular, we introduce concave perturbed utility games in which an individual has strategy-specific utility indices that depend on the outcome of the game and an additively separable preference to randomize. The preference to randomize can be viewed as a reduced form of limited attention. Using concave perturbed utility games, we show how to enrich models based on logit best response that are common from quantal response equilibrium. First, the desire to randomize can depend on opponents’ strategies. Second, we show how to derive a nested logit best response function. Lastly, we present tractable quadratic perturbed utility games that allow complementarity. Full article

(This article belongs to the Special Issue Limited Attention)

► Show Figures

Figure 1

16 pages, 376 KB

Open AccessEditor’s ChoiceArticle

Cartel Formation in Cournot Competition with Asymmetric Costs: A Partition Function Approach

by Takaaki Abe

Games 2021, 12(1), 14; https://doi.org/10.3390/g12010014 - 1 Feb 2021

Cited by 2 | Viewed by 3884

Abstract

In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that [...] Read more.

In this paper, we use a partition function form game to analyze cartel formation among firms in Cournot competition. We assume that a firm obtains a certain cost advantage that allows it to produce goods at a lower unit cost. We show that if the level of the cost advantage is “moderate”, then the firm with the cost advantage leads the cartel formation among the firms. Moreover, if the cost advantage is relatively high, then the formed cartel can also be stable in the sense of the core of a partition function form game. We also show that if the technology for the low-cost production can be copied, then the cost advantage may prevent a cartel from splitting. Full article

(This article belongs to the Special Issue Behavioral Coalition Formation: Theory and Experiments)

► Show Figures

Figure 1

17 pages, 340 KB

Open AccessEditor’s ChoiceArticle

Social Pressure in Networks Induces Public Good Provision

by David Jimenez-Gomez

Games 2021, 12(1), 4; https://doi.org/10.3390/g12010004 - 12 Jan 2021

Cited by 2 | Viewed by 3462

Abstract

I develop a dynamic model with forward looking agents, and show that social pressure is effective in generating provision in a public good game: after a small group of agents start contributing to the public good, other agents decide to contribute as well [...] Read more.

I develop a dynamic model with forward looking agents, and show that social pressure is effective in generating provision in a public good game: after a small group of agents start contributing to the public good, other agents decide to contribute as well due to a fear of being punished, and this generates contagion in the network. In contrast to earlier models in the literature, contagion happens fast, as part of the best response of fully rational individuals. The network topology has implications for whether contagion starts and the extent to which it spreads. I find conditions under which an agent decides to be the first to contribute in order to generate contagion in the network, as well as conditions for contribution due to a self-fulfilling fear of social pressure. Full article

(This article belongs to the Special Issue Pro-sociality and Cooperation)

22 pages, 383 KB

Open AccessEditor’s ChoiceArticle

Constrained versus Unconstrained Rational Inattention

by Yaron Azrieli

Games 2021, 12(1), 3; https://doi.org/10.3390/g12010003 - 5 Jan 2021

Cited by 2 | Viewed by 3488

Abstract

The rational inattention literature is split between two versions of the model: in one, mutual information of states and signals are bounded by a hard constraint, while, in the other, it appears as an additive term in the decision maker’s utility function. The [...] Read more.

The rational inattention literature is split between two versions of the model: in one, mutual information of states and signals are bounded by a hard constraint, while, in the other, it appears as an additive term in the decision maker’s utility function. The resulting constrained and unconstrained maximization problems are closely related, but, nevertheless, their solutions differ in certain aspects. In particular, movements in the decision maker’s prior belief and utility function lead to opposite comparative statics conclusions. Full article

(This article belongs to the Special Issue Limited Attention)

► Show Figures

Figure 1

Journal Menu

Journal Browser

Editor’s Choice Articles

Further Information

Guidelines

MDPI Initiatives

Follow MDPI