Investment Game Research Articles

Heterogeneous reinsurance premiums under a trilateral stochastic differential game

This article investigates a trilateral stochastic differential reinsurance and investment game with heterogeneous reinsurance premiums. As the leader in the Stackelberg game, the reinsurer maximizes the expected utility of the combination of the three players’ terminal wealth other than its own utility. The degree to which a reinsurer pays attention to an insurer depends on the coefficient α i ( i = 1 , 2 ) . The insurers spread their risks and expand their underwriting capacity by purchasing reinsurance with strategies involving relative performance in a non-zero-sum stochastic differential game. We derive explicit expressions of the Nash equilibrium strategy and prove the verification theorem using dynamic programming and backward induction methods. We discuss the parameters comparative static analysis of the equilibrium strategies through numerical examples. The numerical results show that the coefficient α i ( i = 1 , 2 ) is proportional to the reinsurance premium price and is inversely proportional to the reinsurance ratio.

Multiple Reputations: Selective Attention to Competence and Character.

Reputation is multidimensional, with some traits being more relevant than others in particular contexts. Can people selectively respond to reputational cues relevant to the task at hand? Across three studies, we examined how people weigh cues about helpfulness and competence when forming expectations about strangers' behavior. Using adapted investment games, we varied whether a stranger's helpfulness or competence predicted participants' future payoffs. We found that when helpfulness is task-relevant (Experiments 1 and 2), participants correctly use this cue in investment decisions. When competence matters most (Experiment 3), participants use it as the primary cue. Overall, a high reputation for outcome-irrelevant characteristics did not compensate for a low reputation for the outcome-relevant reputational cue. However, we also find an asymmetric spillover: Decision-makers prefer cooperating with others who are highly competent and highly helpful, regardless of task demands. We discuss our results within the theoretical framework of person perception and theories of reputation.

An investment game model for offshore power grid multi-stage expansion planning

The offshore power grid (OPG) which connects multiple neighboring coastal countries is an effective solution to collect and deliver electricity generated by offshore wind farms (OWFs). The transmission network investment decision of the OPG expansion tends to be decentralized where individual stakeholder's strategies are interactive. This paper proposes a two-stage game model to tackle the conflict between the minimum expenditure and the maximum profit of each investor. In the first stage, a cooperative game model is formulated where the players are the OWF investors and the strategies are the connection typologies. The cost of the High Voltage Alternating Current (HVAC) transmission system and the offshore hubs is to be minimized and allocated to each player according to the Shapley value method. In the second stage, a non-cooperative game model is proposed where the players are the coastal countries, represented by onshore nodes and the strategies are the topology of the High Voltage Direct Current (HVDC) transmission system connecting the onshore nodes and the OWFs/offshore nodes. The net present value (NPV) ratio of each player is to be maximized and the Nash equilibrium (NE) is found in different modes. The case study on an OPG with three onshore nodes and two OWFs verifies the effectiveness of the proposed model.

Research on the Value Creation Mechanism of Green-Driven Products in the Internet+ Era

In order to improve the value of green-driven products, this paper studies the value creation mechanism of green-driven products in the Internet+ era. Under the framework of the classic Cournot output game, based on the bounded rationality assumption of the participants, this paper constructs a novel Cournot duopoly investment game model, and analyzes the dynamic adjustment mechanism of the participants' investment. The decision variable of participating enterprises is to select the optimal investment amount, and each production enterprise makes investment decisions in the next period according to the observed marginal profit of the current period to maximize the profit. Through calculation and analysis, it can be known that three boundary equilibriums and one interior point equilibrium of the discrete dynamic model system are obtained in this paper. The experimental analysis shows that the value creation mechanism of green-driven products proposed in this paper can effectively promote the value of green-driven products.

Gender Differences in Intra-Household Efficiency: Evidence from an Investment Game Between Spouses in India

In this paper, I test for gender differences in intra-household allocative efficiency through a laboratory experiment with established married couples in India. The experiment presents the couple with the opportunity to earn 50 per cent of daily household expenditure. Spouses played an investment game where one spouse was randomly assigned to the role of sender and the other to receiver. The setting of the game is unique in several ways. There is perfect information over strategies, actions, and final payoffs. Second mover spouses can react to the first movers’ actions, which is rare in intra-household experiments. The unitary and cooperative models of the household are rejected as only 5 per cent of men and 2 per cent of women in the sender role play the household earnings maximising strategy. Women send significantly less money than their male counterparts. Women (senders) who keep more money are those in households where husbands’ tobacco consumption is largest costing households the equivalent of 30 per cent of daily household expenditure. The results indicate that households operate under non-cooperative bargaining contracts where women are willing to incur costs to maintain control over money.

Stackelberg differential reinsurance and investment game for a dependent risk model with Ornstein–Uhlenbeck process

This paper considers a reinsurance and investment problem under the Stackelberg differential game. It assumes that the insurer can purchase reinsurance and the claim businesses between the insurer and the reinsurer are correlated through common shock dependence, and both of them are allowed to invest in a common risky asset whose price follows an Ornstein–Uhlenbeck process. By the stochastic control theory, explicit expressions of the optimal controls and the value functions are obtained for both of the insurer and reinsurer. We show that the optimal reinsurance strategy is a constant, which is independent of the time and risk-free interest rate. We also show that compared with the independent model, the insurer will purchase less reinsurance and the reinsurer will increase the premium price under the dependent risk model.

Influence of protective clothing and masks on facial trustworthiness in an investment game: insights from a Chinese population study

Facial features are important sources of information about perceived trustworthiness. Masks and protective clothing diminish the visibility of facial cues by either partially concealing the mouth and nose or covering the entire face. During the pandemic, the use of personal protective equipment affected and redefined who trusts whom in society. This study used the classical investment game of interpersonal trust with Chinese participants to explore the impact of occlusion on interpersonal trust. Faces with moderate initial trustworthiness were occluded by a mask or protective clothing in Experiment 1 and were digitally occluded by a square in Experiment 2, and faces with three levels of initial trustworthiness were occluded by a mask in Experiment 3. Results showed that both undergraduates (Experiment 1a) and non-student adults (Experiment 1b) perceived the faces with protective clothing as more trustworthy than faces wearing standard masks and faces not wearing masks. Faces with the top halves showing were perceived as trustworthy as full faces, while faces with the bottom halves showing were perceived as less trustworthy. The effect of masks is weak and complex. Masks reduced participants’ trust in faces with high initial trustworthiness, had no effect on faces with low and moderate initial trustworthiness, and only slightly increased the trust of undergraduates in faces with moderate initial trustworthiness. Our findings indicate that the lack of information caused by occlusion and the social significance associated with occlusion collectively affect people’s trust behavior in Chinese society. We believe the findings of this study will be useful in elucidating the effects of personal protective equipment usage on perceptions of trustworthiness.

Influence of subsidy policies against insurances on controlling the propagation of epidemic security risks in networks

Subsidies are used to further control the propagation of epidemic security risks as they offer users incentives to practice security investment behaviors. However, previously proposed subsidy policies have typically been studied without insurance, and it is still challenging to build effective subsidy strategies when users can transfer some of the infection loss to the insurer by purchasing insurance, because these external incentives may alter users' decisions to purchase insurance. To this end, we designed three subsidy policies in a scenario where purchasing insurance is one of the available strategies to users: under SPIns and SPInsp, the subsidies are used as the insurance funds and the risk precaution aspect of the insurance funds, respectively, and under SPInsd, a fraction of the subsidies are used to support some free-riding users with high node importance in their purchase of insurance, and the remaining subsidies are used as the precaution aspect of the insurance funds. The subsidy policies are studied with a formulated security investment game model on scale-free networks from the perspectives of the public and insurer. The results show that SPInsd can always work effectively and outperforms others in limiting the extent of an epidemic outbreak with similar or lower social costs, and without a reduction in profit for the insurer. More importantly, an interesting phenomenon emerges in the SPInsp scenario: under specific insurance parameters, the increase in subsidy funding has a negative impact on preventing the risk spread, leading to larger final epidemic sizes. In addition, the effectiveness of SPInsd on scale-free networks with larger average degree or network size and random networks are also studied. We anticipate this work can provide useful insights for policy makers with respect to design and implementation of optimal subsidy policies related to the control of epidemic security risks under an insurance scenario.

Mean field game of optimal relative investment with jump risk

Mean field game of optimal relative investment with jump risk

Moral learning and positive schizotypy: Social cognitive mechanisms in psychosis- proneness

BackgroundDelusional thoughts such as paranoia and conspiratorial thinking reflect beliefs in others' intentions to do harm. Given the integral role of harm evaluation in moral cognition, a better understanding of how psychosis-prone individuals process others' moral characters may provide insights into social cognitive mechanisms of these types of delusions. MethodsAn online sample of 293 participants was drawn from the general population, using Amazon Mechanical Turk. Participants performed a moral inference task, where they predicted and judged the binary choices of two fictitious agents (“good” or “bad”) to impose harm under different levels of financial incentives. An investment game involving the same agents then examined participants' trust behavior. Psychosis-proneness was measured with the Multidimensional Schizotypy Scale Brief Edition. ResultsA set of multiple regressions showed that positive schizotypy was associated with a lower yet more confident pre-experimental expectation of the agent's moral character, lower prediction accuracy of the agent's harm preferences, less belief revision, and undifferentiated perception of the good and bad agents' characters. Positive schizotypy was also related to higher expectations for reciprocity in the investment game, regardless of agent characters. ConclusionOur findings suggest that inflexible beliefs associated with psychosis-proneness extend beyond negative prior expectations, also reflecting difficulties in moral learning. The resulting undifferentiated moral impressions might contribute to undue suspicion of benevolent individuals and increased gullibility to malicious ones, potentially further strengthening conspiratorial beliefs.

Coordinated and uncoordinated punishment in a team investment game

Coordinated punishment occurs when punishment requires a specific number of punishers to be effective, otherwise, no damage will be inflicted on the target. While societies often rely on this punishment device, its benefits are unclear compared to uncoordinated punishment, where punishment decisions are substitutes. In this paper, we compare the efficacy of coordinated and uncoordinated punishment in a team investment game with two investors and one allocator. Our findings indicate that coordinated punishment results in higher levels of cooperation and reciprocity, as measured by the levels of joint investment and the return by allocators. Importantly, this does not translate into higher payoffs: investors use punishment more frequently when this is coordinated, which destroys the efficiency gains generated by the highest investment. In fact, our results suggest that the highest level of efficiency would be achieved if investors were not allowed to punish.

Non-zero-sum reinsurance and investment game under thinning dependence structure: mean–variance premium principle

This paper considers a non-zero-sum stochastic differential reinsurance and investment game between two competitive insurers under the expected exponential utility. It is assumed that the surplus process of each insurer is characterized by a compound Poisson model and their claim businesses are correlated through thinning dependence structure. Each insurer can purchase proportional reinsurance and is allowed to invest in a risk-free asset and a risky asset. The insurers compete with each other and are concerned with the relative performance. By using the stochastic control technique, not only the existence and uniqueness of the optimal strategies are proved, but also the specific analyses for the constraint reinsurance strategies are provided. We find that (i) the thinning dependence structure has significant impact on optimal reinsurance strategies for both insurers and can help them reduce risks; (ii) the behavior of non-zero-sum game will reduce the proportion of purchasing reinsurance for each insurer.

Spatial Model of Media Bias: a Game of Investment and Selective Reporting

Spatial Model of Media Bias: a Game of Investment and Selective Reporting

Optimal investment game for two regulated players with regime switching

Optimal investment game for two regulated players with regime switching

The irrepressible influence of vocal stereotypes on trust.

There is a reciprocal relationship between trust and vocal communication in human interactions. On one hand, a predisposition towards trust is necessary for communication to be meaningful and effective. On the other hand, we use vocal cues to signal our own trustworthiness and to infer it from the speech of others. Research on trustworthiness attributions to vocal characteristics is scarce and contradictory, however, being typically based on explicit judgements which may not predict actual trust-oriented behaviour. We use a game theory paradigm to examine the influence of speaker accent and prosody on trusting behaviour towards a simulated game partner, who responds either trustworthily or untrustworthily in an investment game. We found that speaking in a non-regional standard accent increases trust, as does relatively slow articulation rate. The effect of accent persists over time, despite the accumulation of clear evidence regarding the speaker's level of trustworthiness in a negotiated interaction. Accents perceived as positive for trust can maintain this benefit even in the face of behavioural evidence of untrustworthiness.

On the difficulty of characterizing network formation with endogenous behavior

Bolletta (2021) studies a model in which a network is strategically formed and then agents play a linear best-response investment game in it. The model is motivated by an application in which people choose both their study partners and their levels of educational effort. Agents have different one-dimensional types – private returns to effort. A main result claims that (pairwise Nash) stable networks have a locally complete structure consisting of possibly overlapping cliques: if two agents are linked, they are part of a clique composed of all agents with types between theirs. A counterexample shows that the claimed characterization is incorrect. We specify where the analysis errs and discuss implications for network formation models.

Smile mimicry smoothens human-virtual human interactions

During social interactions, people often unintentionally mimic each other's behaviors, which can occur at the motor level (e.g. smiles or head movements), and the autonomic level (e.g. pupil size). Mimicry has often been linked with increases in liking and trust and tends to smoothen the bond between interaction partners. However, people with social anxiety are generally less expressive and they may also have altered mimicry behavior. The current study aims to explore the relationship between mimicry, person-perception, and social anxiety levels by having participants interact with virtual humans. Compared to real interaction partners or photographed or filmed actors, virtual humans can be controlled and behaviors very precisely manipulated. Participants observed ten virtual humans telling a neutral story on a computer monitor. At predetermined time points, the virtual humans showed four types of expressions: smiles, head movements, pupil dilation, and blushing. After each story, we measured to what extent participants liked and trusted the virtual humans via the avatar evaluation questionnaire, the desire for future interaction scale, and an investment game. In addition, we assessed participants’ social anxiety levels. The results show that participants, regardless of anxiety levels, mimicked the virtual humans’ smiles and that smile mimicry is associated with an increased liking and trust toward the virtual humans. These results build on previous research showing that the mimicry of smiles acts as a social glue and also benefits virtual social interactions.

On the correlation of self‐reported and behavioral risk attitude measures: The case of the General Risk Question and the Investment Game following Gneezy and Potters (1997)

AbstractRisk attitudes play a pivotal role to understand economic decision‐making, and several measures are used to elicit them in the lab and survey them in the field. We provide a literature review on the most commonly used risk elicitation methods by Holt and Laury (HL) and the Investment Game (IG) by Gneezy and Potters and the General Risk Question (GRQ) utilized in the German Socioeconomic Panel. Based on the metadata from three experiments, we show that the GRQ has a robust and economically relevant association with the IG.

Reducing partner risk: the effect of feedback timing and incentives

Firms’ partners often face a wide range of risks and may experience detrimental effects when these firms do not meet certain targets. In this study, we examine how timing of feedback about target outcomes and the presence of incentives for managers to meet these targets influence managers’ effort and their partners’ willingness to collaborate. We test our hypotheses in a representative ESG setting using a multi-period investment game with a 2 × 2 design where a collaborating partner only realises a return on her investment if the manager of the firm with whom she contracts meets an ESG norm. The risk of not meeting this norm decreases when managers provide costly effort. While results show no significant effect of feedback timing on managers’ effort in the absence of incentives, providing incentives to the manager may be detrimental for effort provision when target outcomes become available after a short time period. We also find that in the absence of incentives, firms’ partners invest more when outcomes become available after a short time period than after a longer time period. Further, when outcomes become available after a short time period, partners invest less when managers receive incentives compared to when managers receive no incentives.

In transparency we trust an experimental study of reputation, transparency, and signaling

We study transparency and reputation in a stylized investment game in which two senders interact with a receiver in a linear network with partial information. We analyze how ex-ante information (compatible with receiver's reputation building) and ex-post information (making the receiver's decisions transparent) affect behavior in the trust game. In the Reputation treatment, senders know the average amount returned by the receiver to senders in the previous period, but not the actions of those senders. In the Transparency treatment, senders are aware of the amount received by the other sender, but not the action of this other sender. Relative to a Baseline treatment in which senders are only informed about their own actions and outcomes, ex-ante and ex-post information disclosure have very different effects. While reputation helps some receivers, aggregate trust does not significantly increase in the Reputation condition. Transparency generates a large and significant increase in trust (amounts sent are 27% above the ones chosen in Reputation), being the effect largely driven by a sustained and large reduction of senders choosing not to trust at all (56% less in Transparency than in Reputation in the second half of the experiment). Our design also introduces a non-binding recommendation for both senders and receivers. Across all treatments and roles, this recommendation significantly and positively shapes individual decisions.