Higher Payoff Research Articles

Costly Voluntary Disclosure in a Signaling Game

Abstract We conduct an experimental analysis of pretrial bargaining, while allowing for the costly disclosure of private information in a signaling game. Under the theory, 100 % of plaintiffs with a weak case are predicted to remain silent, while 100 % of the plaintiffs with a strong case are predicted to voluntarily disclose their type. We find that 75 % of weak plaintiffs remain silent and 67 % of strong plaintiffs reveal their type. In line with theory, weak plaintiffs who reveal their type receive a lower payoff, while strong plaintiffs who reveal their type receive a higher payoff. Plaintiffs with a strong case who reveal their type have a dispute rate which is 50 % points lower than strong plaintiffs who remain silent. Because plaintiffs who reveal their type cannot extract the entire surplus from settlement from the defendant, the incentive to engage in voluntary disclosure is weaker empirically than it is in theory.

Energy trading in the distribution system using a non-model based game theoretic approach

A comprehensive energy trading market is proposed at the distribution level using a model-free, game theoretic approach. The proposed market is modeled as a non-cooperative, multiplayer game, and a Nash equilibrium solution is obtained using an extremum seeking algorithm. For the game model, a non-cooperative market structure is proposed with an embedded notion of each player’s reputation. Besides that, an index is proposed that tracks the commitments of each player, rewards them according to their past behavior, and improves market reliability. Moreover, the proposed index, referred to as a Market Reputation Index, promotes fairness by rewarding good players and also encourages installation of an energy management system with accurate forecasting. A new, low-complexity, model free approach (i.e., Extremum seeking) is demonstrated to model Nash seeking behavior of players and a unique Nash equilibrium solution is sought for the proposed game. Detailed case studies demonstrate how the game is setup and the convergence to Nash equilibrium is achieved. Results are analyzed to show the usefulness of the market reputation index in improving reliability and fairness. It is also shown that the proposed market results in an increased local generation, higher payoffs (profits) for the participating players, and lower market clearing prices.

A bi-objective game-theoretic model for collaboration formation between software development firms.

Requirement for formation of collaborations has been on increase for the software development industry, especially for smaller to medium sized firms, due to rapid technological advancements, requirements for diversified skills, ever enhancing demands for innovation and fierce competition. Collaborative product development in an alliance enables the firms to benefit from each other’s diversified skills and the experience as a result of which they can develop products more rapidly and of better quality as well resulting in a higher payoff. Also, the development costs decrease. However, to avoid undesired results, selection of an appropriate partner firm for collaboration is of utmost importance keeping in view the objectives of alliance formation of both the strategic partners. One-way partner selection techniques available in the literature are impractical as they enable a firm to rank potential partners only from its own perspective while ignoring their objectives. This problem is addressed by the two-way partner selection techniques, however, they either ignore the payoff distribution criteria or the proposed criteria is unfair. More importantly, existing techniques consider that firm collaborate only with the objective to enhance their financial payoff which might not always be the case. The fact that collaborating firms may have one but different objectives for collaboration, or, each may have multiple objectives is largely neglected. To address the scenarios in which firms may collaborate due to multiple and possibly different objectives, this work proposes a bi-objective game-theoretic model that enables a firm to select an appropriate partner based on the individual preferences of both on the following two objectives: 1) learning and 2) financial revenue. Moreover, this model calculates the pay-off that each firm should get whether only monetary, only in the form of learning or both. The calculation of payoff share is based on the following parameters: 1) individual goals of collaboration of partner selecting firms on the said two objectives, 2) their level of cost contribution, 3) cooperation ratio and 4) knowledge investment difference. Comprehensive analysis of various scenarios is done for the proposed Nash Bargaining payoff distribution model to find the optimum strategy of collaborating firms for each scenario.

Vicarious Rewards Modulate the Drift Rate of Evidence Accumulation From the Drift Diffusion Model.

Taking other people’s interests into account is a fundamental ability allowing humans to maintain relationships. Yet, the mechanisms by which monetary incentives for close others influence perceptual decision-making processes remain elusive. Here, we compared perceptual decisions motivated by payoffs for oneself or a close relative. According to drift diffusion models (DDMs), perceptual decisions are made when sensory evidence accumulated over time – with a given drift rate – reaches one of the decision boundaries. We used these computational models to identify whether the drift rate of evidence accumulation or the decision boundary is affected by these two sources of motivation. Reaction times and sensitivity were modulated by three factors: the Difficulty (motion coherence of the moving dots), the Payoff associated with, and the Beneficiary of the decision. Reaction times (RTs) were faster for easy compared to difficult trials and faster for high payoffs as compared to low payoffs. More interestingly, RTs were also faster for self than for other-affecting decisions. Finally, using DDM, we found that these faster RTs were linked to a higher drift rate of the decision variable. This study offers a mechanistic understanding of how incentives for others and motion coherence influence decision-making processes.

Second-Price All-Pay Auctions and Best-Reply Matching Equilibria

The paper studies second-price all-pay auctions — wars of attrition — in a new way, based on classroom experiments and Kosfeld et al.’s best-reply matching (BRM) equilibrium. Two players fight over a prize of value [Formula: see text], and submit bids not exceeding a budget [Formula: see text]; both pay the lowest bid and the prize goes to the highest bidder. The behavior probability distributions in the classroom experiments are strikingly different from the mixed Nash equilibrium (NE). They fit with BRM and generalized best-reply matching (GBRM), an ordinal logic according to which, if bid A is the best response to bid B, then A is played as often as B. The paper goes into the GBRM logic, highlights the role of focal values and discusses the high or low payoffs this logic can lead to.

Nursing home fraud schemes: Forensic accounting lessons from litigation

ABSTRACT The potentially high payoffs from nursing home fraud continues to be a temptation for those associated with nursing homes. In Blythe and Goodpasture [2], some of the more egregious examples of Medicare fraud were in the nursing home environment. Accordingly, the objectives of this study are to: (1) analyze forty of the most significant appellate cases of nursing home fraud that were decided by the eleven circuits of the United States Court of Appeals during the past forty years; (2) determine the crimes for which nursing home fraudsters are most often prosecuted; (3) identify which types of persons and organizations most commonly engage in nursing home fraud; (4) ascertain the most prevalent types of nursing home fraud schemes; (5) determine the sentences ordinarily meted out to those convicted of nursing home fraud; and (6) consider some important accounting and auditing issues pertaining to nursing home fraud.

Timescale diversity facilitates the emergence of cooperation-extortion alliances in networked systems

Extortion strategies, which can unilaterally guarantee the extortionate agent’s payoff not less than its opponent, have attracted lots of attention. It has been found that extortion plays a nontrivial role in the evolution of unconditional cooperation in networked systems. In this paper, we investigate the influence of timescale diversity on the evolution of three strategies, i.e., unconditional cooperation, unconditional defection, and extortion. It is shown that diversifying the timescales can significantly promote the emergence of unconditional cooperation. Particularly, with the diversity of timescales, cooperators can slow down their update speed while obtaining high payoffs. Therefore, they are able to form stable alliances with extortioners, which helps them to resist the invasion of defectors. Eventually, the cooperation-extortion alliance can eliminate defection in the networked system.

Sustainable management of renewable resources: an experimental investigation in continuous time

ABSTRACTThis study addresses one of the most basic questions in renewable resource management: the ability of economic agents to exploit a renewable resource in an efficient and sustainable manner. In a laboratory experiment, subjects are presented with renewable resource extraction problems, where optimal management will lead to a stable steady state. A test of sustainability of the extraction practices shows that extraction behaviour results in steady states only 56% of the time. The mode of the steady state distribution coincides with the optimal steady state extraction. The trade-off between accruing a higher payoff in the present and sustaining the resource for future exploitation leads to suboptimal behaviours such as initial overextraction of the resource compared to the optimal extraction policy, costly downward adjustment of the extraction later in time, and settling down for lower long-run resource and extraction. The suboptimal behaviours lead to 17% loss in efficiency on average in terms of the accumulated payoff. We further look at extraction behaviour in terms of the degree of impatience it projects and find, based on their extraction decisions, that most of our subjects seem more impatient in managing their resource than is justified by the decision-making problem presented to them.

For Those Who Want It All... Salience and Behavioral Financial Engineering in the French Financial Retail Market of the Early 2000s

This paper presents an in-depth analysis of the BNP Garantie JET 3, a complex retail structured product that was marketed in France in the early 2000s. To understand the risk-return profile of the JET 3 contract, we simulate the distribution of its payoffs. Then we show that the demand for the JET 3 is hard to explain with standard risk-return preferences, since the product is usually dominated by others simpler portfolios. This is no longer the case if we assume that the investor has a qsalience bias (Bordalo et al., 2012), i.e. a tendency to overweight salient payoffs. This is due to the fact that the JET 3 has two built-in features that are very attractive for a salient-biased investor: full insurance and very high payoffs in the good states. We show that the JET 3 dominates the relevant alternatives if the salience bias is big enough. We conclude that the JET 3 might be a good instance of behavioral financial engineering, i.e. the design of complex financial products that take advantage of the investors’ behavioral biases to shroud risk and high fees.

Imitating the winner leads to discrimination in spatial prisoner\u2019s dilemma model

The occurrence of discrimination is an important problem in the social and economical sciences. Much of the discrimination observed in empirical studies can be explained by the theory of in-group favouritism, which states that people tend to act more positively towards peers whose appearances are more similar to their own. Some studies, however, find hierarchical structures in inter-group relations, where members of low-status groups also favour the high-status group members. These observations cannot be understood in the light of in-group favouritism. Here we present an agent based model in which evolutionary dynamics can result in a hierarchical discrimination between two groups characterized by a meaningless, but observable binary label. We find that discriminating strategies end up dominating the system when the selection pressure is high, i.e. when agents have a much higher probability of imitating their neighbour with the highest payoff. These findings suggest that the puzzling persistence of hierarchical discrimination may result from the evolutionary dynamics of the social system itself, namely the social imitation dynamics. It also predicts that discrimination will occur more often in highly competitive societies.

An adaptive replacement of the rule update triggers the cooperative evolution in the Hawk–Dove game

Since Maynard Smith and Price proposed the earliest version of Hawk–Dove (HD) game, it attracted researchers’ attention as one of models of conflict for two players in game theory. In conflict game, the players’ benefit depends on the strategy of opponent for each other. In the classical spatial HD games, if one player adopts defector strategy, it tends to get high payoffs, and therefore increases population of the same strategy, which resulting in an extinction of cooperators. Several studies tried to solve the problem of an extinction of cooperator in spatial HD game. In this paper, we developed a novel spatial HD model replacing the best takes over update rule with different one, and investigated the effect of modifying update rules on the problem of collaborators extinction in space HD games. We found that our model generated characteristic population patterns and represented the survival of cooperators compared with the classical spatial HD model in which the updated rule was fixed.

Endogenous sanctioning institutions and migration patterns: Experimental evidence

We experimentally analyze the effect of the endogenous choice of sanctioning institutions on cooperation and migration patterns. Subjects are assigned to one of two groups, are endowed with group-specific preferences, and play a public goods game. We compare an environment in which subjects can move between groups and vote on whether to implement sanctions, to one in which only one group is exogenously endowed with sanctions. We find that the possibility of voting leads to a more efficient partition of subjects across groups, higher payoffs, lower inequality, and lower migration rates. Over time, subjects tend to vote for institutions.

A Fixed-Point Policy-Iteration-Type Algorithm for Symmetric Nonzero-Sum Stochastic Impulse Control Games

Nonzero-sum stochastic differential games with impulse controls offer a realistic and far-reaching modelling framework for applications within finance, energy markets, and other areas, but the difficulty in solving such problems has hindered their proliferation. Semi-analytical approaches make strong assumptions pertaining to very particular cases. To the author's best knowledge, the only numerical method in the literature is the heuristic one we put forward in [ABM+19] to solve an underlying system of quasi-variational inequalities. Focusing on symmetric games, this paper presents a simpler, more precise and efficient fixed-point policy-iteration-type algorithm which removes the strong dependence on the initial guess and the relaxation scheme of the previous method. A rigorous convergence analysis is undertaken with natural assumptions on the players strategies, which admit graph-theoretic interpretations in the context of weakly chained diagonally dominant matrices. A novel provably convergent single-player impulse control solver is also provided. The main algorithm is used to compute with high precision equilibrium payoffs and Nash equilibria of otherwise very challenging problems, and even some which go beyond the scope of the currently available theory.

Robustness of Reputation Effects under Uncertain Monitoring

I study reputation effects under uncertain monitoring. I examine a repeated game between a long-run player and a series of short-run opponents. The long-run player can either be a strategic type or a commitment type that plays the same action in every period. The modeling innovation is that the short-run player is unsure about the monitoring structure. The uncertainty about the monitoring structure introduces new challenges to reputation building because there may not be a direct relationship between the distribution of signals and the long-run player's strategy. Thus the long-run player may not have the ability to establish a reputation for commitment. I show that, when the short-run players cannot statistically distinguish commitment action from a bad action, the standard reputation results break down. I also provide sufficient conditions under which reputation effects on long-run player’s payoffs can be extended to the current framework. When the commitment payoff is the highest payoff he can get, the conditions can be relaxed.

Dopaminergic genes are associated with both directed and random exploration

In order to maximize long-term rewards, agents must balance exploitation (choosing the option with the highest payoff) and exploration (gathering information about options that might have higher payoffs). Although the optimal solution to this trade-off is intractable, humans make use of two effective strategies: selectively exploring options with high uncertainty (directed exploration), and increasing the randomness of their choices when they are more uncertain (random exploration). Using a task that independently manipulates these two forms of exploration, we show that single nucleotide polymorphisms related to dopamine are associated with individual differences in exploration strategies. Variation in a gene linked to prefrontal dopamine (COMT) predicted the degree of directed exploration, as well as the overall randomness of responding. Variation in a gene linked to striatal dopamine (DARPP-32) predicted the degree of both directed and random exploration. These findings suggest that dopamine makes multiple contributions to exploration, depending on its afferent target.

On the properties of the nucleolus of a veto game

We study the nucleolus of veto games (see Bahel in Int J Game Theory 45(3):543–566, 2016), where some players are indispensable for coalitions to achieve a positive value. We first derive some noticeable properties satisfied by the nucleolus of a veto game: for instance, veto players always receive a higher payoff than the others. In the particular case of clan games, Potters et al. (Games Econ Behav 1:275–293, 1989) provided a formula for the nucleolus. We give a condition that is necessary and sufficient for this formula to apply in a general veto game. Building on this result, we describe an intuitive adjustment process allowing to derive a generic formula for the nucleolus of a veto game.

Anisotropic strategies and the evolution of cooperation in social dilemmas on networks

Anisotropic strategies are introduced and studied numerically and analytically in the context of prisoner’s dilemma (PD) played in a system of connected agents for their effects on the evolution of cooperation. For an agent competing with k neighbors, an anisotropic strategy has k entries representing the different actions against each of the opponents. The commonly used cooperative and non-cooperative strategies against all opponents are isotropic and special cases of anisotropic strategies. For evolutionary PD based on a death–birth process in dynamically formed competing groups, selection results in a totally non-cooperative state but the dynamics is altered by the anisotropic strategies. For agents connected by static networks having a uniform degree, the cooperative level exhibits plateaux as the temptation payoff increases. The plateaux represent the dominance of different classes of anisotropic strategies with decreasing cooperative entries. Dynamical equations with results in good agreement with simulation results on the evolution of strategies and the long time behavior are constructed. For static networks with a spread in degrees, the plateaux disappear except for the one corresponding to a totally cooperative population. For all cases, anisotropic strategies are found to maintain a cooperative level no less than that in a corresponding system in which only isotropic strategies are in play for high temptation payoffs. Anisotropic strategies suggest an alternative mechanism for enhancing cooperation in PD and other games that is worthy of further investigations.

Numerate decision makers don’t use more effortful strategies unless it pays: A process tracing investigation of skilled and adaptive strategy selection in risky decision making

AbstractThe present study investigated skilled and adaptive strategy selection in risky decision making. We proposed that people with high objective numeracy, a strong predictor of general decision making skill, would have a broad repertoire of choice strategies and adaptively select these strategies depending on the importance of the decision. Thus more objectively numerate people would maximize their effort (e.g., invest more time) in important, high-payoff decisions and switch to a simple, fast heuristic strategy in trivial decisions. Subjective numeracy would, by contrast, be more closely related to interest in problem solving for its own sake and would not yield such an effect of importance. Participants made twelve high-payoff choices and twelve low-payoff choices in binary two-outcome gambles framed as gains. We measured objective and subjective numeracy using standard measures. Results showed that people with high subjective numeracy generally maximized the expected value (EV) in all decisions. In contrast, participants with high objective numeracy maximized EV only when choice problems were meaningful (i.e., they could result in high payoffs). When choice problems were trivial (i.e., choosing the normatively better option would not result in a large payoff), more objectively numerate participants made choices consistent with faster, more frugal heuristic strategies.

Evolution of cooperation in stochastic games.

Social dilemmas occur when incentives for individuals are misaligned with group interests1-7. According to the 'tragedy of the commons', these misalignments can lead to overexploitation and collapse of public resources. The resulting behaviours can be analysed with the tools of game theory8. The theory of direct reciprocity9-15 suggests that repeated interactions can alleviate such dilemmas, but previous work has assumed that the public resource remains constant over time. Here we introduce the idea that the public resource is instead changeable and depends on the strategic choices of individuals. An intuitive scenario is that cooperation increases the public resource, whereas defection decreases it. Thus, cooperation allows the possibility of playing a more valuable game with higher payoffs, whereas defection leads to a less valuable game. We analyse this idea using the theory of stochastic games16-19 and evolutionary game theory. We find that the dependence of the public resource on previous interactions can greatly enhance the propensity for cooperation. For these results, the interaction between reciprocity and payoff feedback is crucial: neither repeated interactions in a constant environment nor single interactions in a changing environment yield similar cooperation rates. Our framework shows which feedbacks between exploitation and environment-either naturally occurring or designed-help to overcome social dilemmas.

Local secessions, homophily, and growth. A model with some evidence from the regions of Abruzzo and Molise (Italy, 1963)

This paper analyses the case of a local secession, i.e. the birth of a new local jurisdiction by separation from an existing one. We present a stylized model in which society is composed of heterogeneous groups and individuals have an homophily bias. The model predicts that: (i) separations, such as the split of a territory into distinct administrative units, occur when the costs of mixed communities are sufficiently large; (ii) the smaller community drives the decision to secede; (iii) welfare gains from the split are associated with positive population growth; (iv) higher payoffs under separations, however, might be related to taste for sameness only, with no (or even negative) effect on economic growth. Empirically, we exploit the secession of the Italian region of Molise from Abruzzo in 1963, a unique event in Italian history. Historical records document that the split was the result of pressures from Molise, the smaller community. Our evidence suggests that the split was associated with population inflows in both areas. Finally, by using a synthetic control approach, we show that the split caused significant benefits to per-capita GDP growth, in both regions.