Model Of Strategic Interaction Research Articles

Altruistic preferences in global emission games

This paper analyses the impact of altruism on the individual country goverments’ incentives to reduce global polluting emissions. The game theory perspective provides insights into the strategic decision-making processes of the governments regarding the problem of climate change. We propose a model of strategic interactions among countries in which each government is concerned with its own benefit, as well as with the benefits of all the other countries.The model is a vector-valued non-cooperative game that permits the representation of situations in which the preferences of the governments are incomplete and there is imprecision about the degrees of altruism. The focus is on the identification of the potential equilibria that will eventually be reached when the governments show different attitudes towards other countries or groups of countries. As a result, we show that the incorporation of altruism into the model produces equilibria with a positive effect on the reduction of emissions.

Global lending conditions and international coordination of financial regulation policies

Using a model of strategic interactions between two countries, I investigate the gains to international coordination of financial regulation policies, and how these gains depend on global lending conditions. When one region – the core – sets global lending conditions, I show that coordinating regulatory policies makes the two regions better-off relative to the case of no cooperation. Global lending conditions set by the core are typically sub-optimal for the other region – the periphery –. To reduce this cost, the periphery can tighten its regulatory policy. Yet, in doing so, it fails to internalise a cross-border externality: when the periphery tightens its regulatory policy, agents in the core reduce cross-border borrowing, which tightens global lending conditions and hurts the periphery. The cooperative equilibrium can improve on this outcome. Both regions take into account the cross-border externality, leading to larger cross-border borrowing and less sub-optimal lending conditions for the periphery.

Econometric inference on a large Bayesian game with heterogeneous beliefs

Econometric models of strategic interactions among people or firms have received a great deal of attention in the literature. Less attention has been paid to the role of the underlying assumptions about the way agents form beliefs about other agents. We focus on a single large Bayesian game with idiosyncratic strategic neighborhoods and develop an approach of empirical modeling that relaxes the assumption of rational expectations and allows the players to form beliefs differently. By drawing on the main intuition of Kalai (2004), we introduce the notion of hindsight regret, which measures each player’s ex-post value of other players’ type information, and obtain the belief-free bound for the hindsight regret. Using this bound, we derive testable implications and develop a bootstrap inference procedure for the structural parameters. Our inference method is uniformly valid regardless of the size of strategic neighborhoods and tends to exhibit high power when the neighborhoods are large. We demonstrate the finite sample performance of the method through Monte Carlo simulations.

The graph structure of two-player games

In this paper, we analyse two-player games by their response graphs. The response graph has nodes which are strategy profiles, with an arc between profiles if they differ in the strategy of a single player, with the direction of the arc indicating the preferred option for that player. Response graphs, and particularly their sink strongly connected components, play an important role in modern techniques in evolutionary game theory and multi-agent learning. We show that the response graph is a simple and well-motivated model of strategic interaction which captures many non-trivial properties of a game, despite not depending on cardinal payoffs. We characterise the games which share a response graph with a zero-sum or potential game respectively, and demonstrate a duality between these sets. This allows us to understand the influence of these properties on the response graph. The response graphs of Matching Pennies and Coordination are shown to play a key role in all two-player games: every non-iteratively-dominated strategy takes part in a subgame with these graph structures. As a corollary, any game sharing a response graph with both a zero-sum game and potential game must be dominance-solvable. Finally, we demonstrate our results on some larger games.

Detecting and Correcting for Separation in Strategic Choice Models

AbstractSeparation or “perfect prediction” is a common problem in discrete choice models that, in practice, leads to inflated point estimates and standard errors. Standard statistical packages do not provide clear advice on how to correct these problems. Furthermore, separation can go completely undiagnosed in fitting advanced models that optimize a user-supplied log-likelihood rather than relying on pre-programmed estimation procedures. In this paper, we both describe the problems that separation can cause and address the issue of detecting it in empirical models of strategic interaction. We then consider several solutions based on penalized maximum likelihood estimation. Using Monte Carlo experiments and a replication study, we demonstrate that when separation is detected in the data, the penalized methods we consider are superior to ordinary maximum likelihood estimators.

Оценка влияния налогообложения выбросов СО2 на российскую отрасль нефтедобычи

The impact of hypothetical restrictions on fossil fuel consumption, implemented through the introduction of a tax on CO2 emissions in the global economy and certain regions, on oil production by Russia, OPEC, and eight other major oil producers is assessed in this article. The first part of this study reviews the current literature on taxation of emissions in the global economy. Approaches to modelling such a policy and the problem of choosing the trajectory of the tax rate are analyzed, as are the main conclusions, consequences, and recommendations for the economic policy of oil exporting countries. Approaches to modelling pricing in the oil market are considered separately. The analysis shows that the premise of oligopolistic strategic interaction of oil exporters plays an important role in modelling the oil market. Subsequently, a model of strategic interaction between countries in the oil market is built according to the Cournot model. This model is calibrated using data on the parameter of demand as well as supply, including the production costs of individual exporting countries according to Rystad. Twelve scenarios for taxation of the industry through the introduction of a tax on CO2 emissions in the amount of $25, $50 and $75 dollars per ton of emissions are built. It is assumed that this tax is converted into a tax on the purchase of oil in proportion to the amount of emissions that are emitted when using each barrel of oil. For each initial value of the tax rate of the tax on emissions, cases are considered when the rate remains unchanged or increases at a constant rate of 1.5% per year. Further, the same options for taxation when applied only by developed countries are also considered. The analysis in this article shows that a gradual increase in the tax rate leads to accelerated oil production. It also reveals the significant role of the spillover effect between markets in the case of the introduction of a tax only in some countries. Thus, with the introduction of a tax of $50 per ton of emissions with an annual growth of 1.5% worldwide, the peak oil price is lower by $29.6 per barrel. With the introduction of such a tax only in developed countries, the fall in oil prices at its peak compared to the baseline scenario without taxation is $18.4 per barrel in the market where a tax was introduced, and $7.8 per barrel in a market that did not impose a tax. It is also indicated that, due to the introduction of the tax, Russia has one of the largest losses in revenue among all oil exporters.

Preferences and Performance in Simultaneous First-Price Auctions: A Structural Analysis

Abstract Motivated by the prevalence of simultaneous bidding across a wide range of auction markets, we develop and estimate a model of strategic interaction in simultaneous first-price auctions when objects are heterogeneous and bidders have non-additive preferences over combinations. We establish non-parametric identification of primitives in this model under standard exclusion restrictions, providing a basis for both estimation and testing of preferences over combinations. We then apply our model to data on Michigan Department of Transportation (MDOT) highway procurement auctions, quantifying the magnitude of cost synergies and evaluating the performance of the simultaneous first-price mechanism in the MDOT marketplace.

Recommenders’ originals: The welfare effects of the dual role of platforms as producers and recommender systems

We study a model of strategic interaction between a producer and a platform that employs a recommendation system, following an information design approach. Upon entry into the production market, the platform biases recommendations to credibly steer consumers towards its own goods. Despite the increased upstream competition, platform entry and self-preferencing can decrease consumer welfare and result in foreclosure of the independent producer. We then consider the natural policy remedy of separating recommendation and production or imposing unbiased recommendations and find it leads to welfare gains if the platform’s revenue potential is large enough, but to significant welfare losses when it is not. The ambiguity of such a policy’s welfare implications and the dependence on the industry’s returns highlights the importance of targeted restrictions on platform self-preferencing.

Global Lending Conditions and International Coordination of Financial Regulation Policies

Using a model of strategic interactions between two countries, I investigate the gains to international coordination of financial regulation policies, and how these gains depend on global lending conditions. When global lending conditions are determined non-cooperatively, I show that coordinating regulatory policies leads to a Pareto improvement relative to the case of no cooperation. In the non-cooperative equilibrium, one region - the core - determines global lending conditions, leaving the other region - the periphery - in a sub-optimal situation. The periphery then tightens regulatory policy to reduce the cost of sub-optimal lending conditions. Yet, in doing so, it fails to internalise a cross-border externality: tightening regulatory policy in one region limits ex ante borrowing in the other region, which increases the cost of sub-optimal lending conditions for the periphery. The equilibrium with cooperative regulatory policies can then improve on this outcome as both regions take into account the cross-border externality and allow for larger ex ante borrowing, ending in a lower cost of suboptimal lending conditions for the periphery.

Development of the Entrepreneurial University-Business Strategic Interaction Model for Kazakhstan

Object: The object of this study is the development of university-business strategic interaction model on the basis of analysis of theoretical studies of the organizational and economic mechanism, its essence, structure and elements, as well as models of interaction of shareholders in the process of their evolution.Methods: The historical, informational and comparative analysis methods have been used for the study. The structural-functional and axiomatic methods, systematic approach have been applied to develop the main provisions and conclusions.Results: The article presents the results of the analysis of theoretical concepts and approaches describing the organizational and economic mechanisms, and university-business interaction models, as well as the university-business strategic interaction models developed by the authors.Conclusions: To increase the effectiveness of the interaction of universities with business, it is necessary to find common points of contact of their interests, which launch the interaction mechanism.

A Game-Theoretic Model of Strategic Interaction Using Advertising: Simulating the Evolution of the Cournot Nash Equilibrium under Different Competitive Scenarios

This paper examines the behaviour of two firms competing in a duopoly, where firms can influence demand through use of advertising. The paper simulates the strategic interaction of the two firms based on a game-theoretic Cournot analytical model. The evolution over time of the Nash equilibrium is graphically displayed for a number of different competitive scenarios. The results show that there exist threshold levels of advertising effectiveness at which duopoly behaviour bifurcates, that perfectly cooperative advertising can lead to competitive disadvantage, and that perfectly predatory advertising can lead to stagnation or losses.

Globalization mitigates the risk of conflict caused by strategic territory

Globalization is routinely blamed for various ills, including fueling conflict in strategic locations. To investigate whether these accusations are well founded, we have built a database to assess any given location's strategic importance. Consistent with our game-theoretic model of strategic interaction, we find that overall fighting is more frequent in strategic locations close to maritime choke points (e.g., straits or capes), but that booming world trade openness considerably reduces the risks of conflict erupting in such strategic locations. The impact is quantitatively sizable, as moving one SD (1,100 km) closer to a choke point increases the conflict likelihood by 25% of the baseline risk in periods of low globalization, while reducing it during world trade booms. Our results have important policy implications for supranational coordination.

Recommenders’ Originals: The Welfare Effects of the Dual Role of Platforms as Producers and Recommender Systems

We study a model of strategic interaction between producers and a monopolist platform that employs a recommendation system. We characterize the consumer welfare implications of the platform’s entry into the production market. Upon entry, the platform biases recommendations to steer consumers towards its own goods, which leads to equilibrium investment adjustments by the producers and lower consumer welfare when the platform’s market size is large. Furthermore, we find that a policy separating recommendation and production or imposing unbiased recommendations is not always welfare improving. Our results highlight the ability of platforms to foreclose competition through the use of biased recommender systems.

The two-person and zero-sum matrix game with probabilistic linguistic information

Game theory establishes mathematical models of strategic interactions among rational decision-makers. In many situations, the crisp values of payoffs are difficult to obtain while the probabilistic linguistic information is easy to collect. However, the existing research on matrix game did not consider the probabilistic linguistic information. To bridge this gap, this study takes the probabilistic linguistic information as the input of a two-person and zero-sum matrix game, and addresses the vague information by triangular membership functions. Such a two-person and zero-sum matrix game with probabilistic linguistic information is a useful technique for multiple criteria analysis. In addition, it outputs the same form of information as the inputs to increase the interpretability compared with other uncertain matrix games. An illustrative example about the forest management is provided to show the validity and advantages of the two-person and zero-sum matrix game with probabilistic linguistic information.

Non-Cooperative Game Theory in Measuring Strategic Interactions between Airline Joint-Venture Alliances

Purpose: The paper proposes a research method for measuring strategic interactions between airline joint-venture alliances that compete with each other. Design/Methodology/Approach: The proposed method is based on the non-cooperative game theory with a Nash-Cournot equilibrium. It consists in the development of a model that compares economic performance of airline long-haul, intercontinental operations in two consecutive scenarios, before and after joining an alliance. Findings: A model of strategic interactions between airline joint-venture alliances can be successfully based on the logic of the Nash-Cournot equilibrium. Furthermore, the game theory is an effective tool for analysing economic performance of airline joint business agreements. Practical Implications: The method can be used in measuring bottom line performance of long-haul airline joint business agreements world-wide. For example, on the EU–US airline market, the method can be used in the analysis of the following alliances: United Airlines – Lufthansa Group; American Airlines – International Airlines Group – Finnair; Delta Air Lines – Air France KLM – Virgin Atlantic. Originality/Value: This is a novel approach to research of advanced airline alliance strategies.

Social Bubbles, Fake News, and Profits: Can Real News Survive?

We develop a game-theoretic model of strategic interaction between news providers and news consumers. News providers are profit maximizers while consumers maximize utility. News providers can provide true or fake news. Providing real news is costlier than providing fake news. Consumers can be biased, i.e., live in a social bubble, or unbiased. Real News that does not fit their world view is costly for biased consumers, while fake news imposes a negative externality on unbiased consumers because they have to spend time fact-checking. Heterogeneity in costs for both news purveyors and consumers drives Nash equilibria in static and dynamic game formulations. We conclude that market based rational choice systems can help understand the spread of fake news and biased people. Consequently, it is not enough to say that greedy profit-maximizing media companies drive fake news. Consumers drive the choices made by media companies, while media companies drive the consumer choice to be biased. Fetters on a free press may exacerbate the increase of biased consumers. Last, there may be a trade-off between two equally important democratic goals: the right information to make good decisions and freedom of thought.

The Durability of a Unipolar System: Lessons from East Asian History

Is unipolarity durable? IR scholars have offered contradictory answers, with primacists arguing for the longevity of US unipolarity and declinists suggesting the opposite. The literature suffers, however, from two shortcomings: (1) theories of unipolarity built on the sole case of the United States are difficult to generalize; and (2) they tend to focus on the defensive measures available to lesser states while downplaying the proactive means the unipole can adopt to prolong its dominance. To remedy these weaknesses, I propose a model of strategic interaction and apply it to two cases of unipolarity in East Asian history, Ming China (1368–1644) and Qing China (1644–1912). I argue that unipolar durability is an outcome of strategic interactions between the unipole’s proactive measures to sustain its asymmetric power advantage and the potential challenger’s ability to increase its power without drawing the unipole’s military containment. Unipolar durability is contingent, not preordained.

Modeling Imprecision in Perception, Valuation, and Choice

Traditional decision theory assumes that people respond to the exact features of the options available to them, but observed behavior seems much less precise. This review considers ways of introducing imprecision into models of economic decision making and stresses the usefulness of analogies with the way that imprecise perceptual judgments are modeled in psychophysics—the branch of experimental psychology concerned with the quantitative relationship between objective features of an observer's environment and elicited reports about their subjective appearance. It reviews key ideas from psychophysics, provides examples of the kinds of data that motivate them, and proposes lessons for economic modeling. Applications include stochastic choice, choice under risk, decoy effects in marketing, global game models of strategic interaction, and delayed adjustment of prices in response to monetary disturbances.

Can Citizens Affect the Performance of Their Elected Representatives? A Principal–Agent Model of Strategic Interaction in Democratic Systems

According to standard economic theory, human beings are expected to work more and better when benefits in the form of lower costs or higher reward increase. Principal–agent theory applied to the theory of the firm relies on this relationship and states that employees should be paid according to how well they perform their tasks. In this framework, monitoring devices are introduced to control employees’ performance and determine salaries. In this paper we construct a principal–agent model to describe the relationship between citizens/voters and elected representatives in which monitoring devices are introduced to control the performance of the latter. We demonstrate that tighter controls may produce better performance but also may produce a reduction in the intrinsic motivations of elected representatives, resulting in a reduction of their work effort. These results are interpreted in the light of the motivation crowding theory.

Strategic Interaction Multi-Agent Deep Reinforcement Learning

Despite the proliferation of multi-agent deep reinforcement learning (MADRL), most existing typical methods do not scale well to the dynamics of agent populations. And as the population increases, the dimensional explosion of joint state-action and the complex interaction between agents make learning extremely cumbersome, which poses the scalability challenge for MADRL. This paper focuses on the scalability issue of MADRL with homogeneous agents. In a natural population, local interaction is a more feasible mode of interplay rather than global interaction. And inspired by the strategic interaction model in economics, we decompose the value function of each agent into the sum of the expected cumulative rewards of the interaction between the agent and each neighbor. This novel value function is decentralized and decomposable, which enables it to scale well to the dynamic changes in the number of large-scale agents. Hereby, the corresponding strategic interaction reinforcement learning algorithm (SIQ), is proposed to learn the optimal policy of each agent, wherein a neural network is employed to estimate the expected cumulative reward for the interaction between the agent and one of its neighbors. We test the validity of the proposed method in a mixed cooperative-competitive confrontation game through numerical experiments. Furthermore, the scalability comparison experiments illustrate that the scalability of the SIQ algorithm outperforms the independent learning and mean field reinforcement learning algorithms in multiple scenarios with different and dynamically changing numbers.