Games, Volume 13, Issue 4 (August 2022) – 9 articles

The present paper introduces a theoretical framework through which the degree of risk aversion with respect uncertain prices can be measured through the context of the indirect utility function (IUF) using a lab experiment. First, the paper introduces the main elements of the duality theory (DT) in economics. Next, it proposes the context of IUFs as a suitable framework for measuring price risk aversion through varying prices as opposed to varying payoffs, which has been common practice in the mainstream of experimental economics. Indeed, the DT in modern microeconomics indicates that the direct utility function (DUF) and the IUF are dual to each other, implicitly suggesting that the degree of risk aversion (or risk seeking) that a given rational subject exhibits in the context of the DUF must be equivalent to the degree of risk aversion (or risk seeking) elicited through the context of the IUF. This paper tests the accuracy of this theoretical prediction through a lab experiment using a series of relevant statistical tests. This study uses the multiple price list (MPL) method, which has been one of the most popular sets of elicitation procedures in experimental economics to study risk preferences in the experimental laboratory using non-interactive settings. The key findings of this study indicate that price risk aversion (PrRA) is statistically significantly greater than payoff risk aversion (PaRA). Additionally, it is shown that the risk preferences elicited under the expected utility theory (EUT) are somewhat subject to context. Other findings imply that the risk premium (RP), as a measure of willingness to pay for insuring an uncertain situation, is statistically significantly greater for stochastic prices compared to that for stochastic payoffs. These results are robust across different MPL designs and various statistical tests that are utilized. Full article

Yellow fever is a vector-borne acute viral hemorrhagic disease. It is endemic in tropical areas of Africa and Latin America but demonstrated the potential for international spread during the 2016 outbreak in Luanda, Angola. Yellow fever can be prevented by vaccination, vector control, and avoiding mosquito bites. To account for human behavior in disease dynamics, we add a game-theoretic component to a recent compartmental model of yellow fever transmission. The self-interested individuals evaluate the risks of contracting yellow fever and choose to vaccinate or avoid the bites to minimize the overall costs. We find the Nash equilibria, the optimal levels of vaccination and bite protections if the individuals can decide on the use of only one of the prevention methods as well as when they can decide on the use of both of them. In the later case, we show that vaccination is the preferred method of protection from the individual standpoint and, in the Nash equilibrium, individuals use vaccination only. Our model predicts the vaccination coverage in Angola to be around 65%, which is in reasonable agreement with the empirical value of 68%. We also study whether voluntary prevention can lead to the elimination of the disease in endemic areas. We show that voluntary vaccination alone is not enough to mitigate the risks of outbreaks, suggesting that a mandatory vaccination policy is necessary. Full article

This paper presents a simple formal theoretical model to explain why citizens in authoritarian regimes trust the illiberal official media more than the commercial media. Media trust is defined as changes in the citizen’s belief based on good or bad news from the media. Using this definition, the model evaluates the independent and interaction effect of media bias, censorship, media quality, the citizen’s prior belief of the situation, and the citizen’s ideology on media trust. The findings reconcile some controversies in the literature, and, more importantly, reveal new and subtle explanations the literature did not identify and probably needs to pay attention to. Full article

Does party polarization affect the electoral prospects of a new centrist candidate? The paper investigates this question in the context of a laboratory experiment where a centrist candidate is added to the race between a left candidate and a right candidate. The experimental design varies the polarization of the left and right candidates. The paper focuses on the effect of party polarization on the electoral prospects of a new centrist candidate through strategic voting behavior with experimental subjects acting as voters. The paper yields two main results: (1) party polarization initially improves the electoral prospects of a new centrist candidate; and (2) the effect of party polarization on the electoral prospects of the centrist weakens and ultimately disappears as elections are repeated. This happens because party polarization slows down the speed at which voters desert their candidate and vote strategically for the centrist in an apparent attempt at preventing the election of the candidate on the opposite side. Full article

Nowadays, rating systems play a crucial role in the attraction of customers to different services. However, as it is difficult to detect a fake rating, fraudulent users can potentially unfairly impact the rating’s aggregated score. This fraudulent behavior can negatively affect customers and businesses. To improve rating systems, in this paper, we take a novel mechanism-design approach to increase the cost of fake ratings while providing incentives for honest ratings. However, designing such a mechanism is a challenging task, as it is not possible to detect fake ratings since raters might rate a same service differently. Our proposed mechanism RewardRating is inspired by the stock market model in which users can invest in their ratings for services and receive a reward on the basis of future ratings. We leverage the fact that, if a service’s rating is affected by a fake rating, then the aggregated rating is biased toward the direction of the fake rating. First, we formally model the problem and discuss budget-balanced and incentive-compatibility specifications. Then, we suggest a profit-sharing scheme to cover the rating system’s requirements. Lastly, we analyze the performance of our proposed mechanism. Full article

On taking the intermediate value theorem (IVT) and its converse as a point of departure, this paper connects the intermediate value property (IVP) to the continuity postulate typically assumed in mathematical economics, and to the solvability axiom typically assumed in mathematical psychology. This connection takes the form of four portmanteau theorems, two for functions and the other two for binary relations, that give a synthetic and novel overview of the subject. In supplementation, the paper also surveys the antecedent literature both on the IVT itself, as well as its applications in economic and decision theory. The work underscores how a humble theorem, when viewed in a broad historical frame, bears the weight of many far-reaching consequences; and testifies to a point of view that the apparently complicated can sometimes be under-girded by a most basic and simple execution. Full article

Reserve prices are used by sellers to modify the allocation induced by standard auctions. The existing literature has shown that, if the number of bidders is fixed, a reserve price can be used to increase expected revenues. This comes at the expense of efficiency when the auctioned good goes unsold. Instead, when the number of bidders is not fixed, a reserve price may discourage entry. The reduction in the number of bidders caused by the reserve price in this situation is detrimental for both revenues and efficiency. This work shows that a different conclusion may emerge when potential entrants arrive sequentially and face the risk of incurring losses conditional on winning the object on sale. In fact, we show that reserve prices may lead to more entry and raise the efficiency. Applications characterized by the presence of an incumbent who is better informed about some common characteristics of the object for sale may yield the type of features that are needed for our different conclusion to hold. Full article

I experimentally investigate how vague language changes the nature of communication in a biased strategic information transmission game. Counterintuitively, when both precise and imprecise messages can be sent, in aggregate, senders are more accurate, and receivers trust them more than when only precise messages can be sent. I also develop and structurally estimate a model showing that vague messages increase communication between boundedly rational players, especially if some senders are moderately honest. Moderately honest senders avoid stating an outright lie by using vague messages to hedge them. Then, precise messages are more informative because there are fewer precise lies. Full article

We study a game theoretic model of a parliamentary democracy under proportional representation where ideologically motivated citizen groups form parties, voting occurs and governments are formed. We study the coalition governments that emerge as functions of the parties’ seat shares, the size of the rents from holding office and their ideologies. We show that governments may be minimal winning, minority or surplus. Moreover, coalitions may be ‘disconnected’. We then look at how the coalition formation game affects the incentives for party formation. In particular, we show that when the rents from office are low, the median citizen stands unopposed, and when rents are high, there is more political entry. For intermediate rents, we show that strategic dropouts can happen to influence the final policy. We show that the incentives for strategic dropout can be higher under proportional representation than plurality voting, contrary to Duverger’s law. Our model explains the diverse electoral outcomes seen under proportional representation and integrates models of political entry with models of coalitional bargaining. Full article