Browsing by Subject "Game theory"

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Algorithm and mechanism design with nonlinear preferences
(2018-08) Yang, Ger; Nikolova, Evdokia; Dimakis, Georgios-Alex; Shakkottai, Sanjay; Tran, Ngoc; de Veciana, Gustavo
In real life, many combinatorial and economic problems have nonlinear objectives and constraints, where the nonlinearities typically arise from different risk preferences, non-rationality, etc. Solving these problems is often computationally hard but can be beneficial by providing more revenue or welfare. In this thesis, I am going to investigate three problems: route planning with a nonlinear objective, dynamic mechanism design with agents of bounded rationality, and economic mechanism design with risk-loving buyers.
Algorithms and hardness results for resource allocation and facility location problems
(2021-05-12) Sinha, Vaibhav Birendrakumar; Plaxton, C. Greg
Many real-life scenarios involve making decisions based on agent preferences, for example, electing leaders, developing public facilities, and allocating resources in market. In this thesis, we consider two such problems where we want to make decisions based on agent preferences. In our first problem, we study a variant of the classic housing markets model. Each agent is initially assigned a unique house, and the houses form a graph. Each agent has strict preferences over the houses. Two agents can swap houses if the swap is Pareto-improving and the houses are adjacent. We study three reachability questions in the context of various graph structures. In our second problem, we study a variant of the facility location game. In this setting, a central planner has to build a set of heterogeneous facilities. Every agent reports the set of facilities that they consider "obnoxious". The goal is to design strategyproof and group-strategyproof mechanisms that maximize either the total utility of agents or the minimum utility of agents.
Autonomous dynamic decision making in fuel cycle simulators using a game theoretic approach
(2018-12) Phathanapirom, Urairisa Birdy; Haas, Derek Anderson, 1981-; Leibowicz, Benjamin D.; Landsberger, Sheldon; Wilson, Paul
A novel methodology for optimizing nuclear fuel cycle transitions that captures interactions between a policy maker and electric utility company is presented. The methodology is demonstrated using a two-person general-sum sequential game with uncertainty that is implemented using a nuclear fuel cycle simulator capable of calculating a material- and technology-constrained material balance, coupled to a multi-objective optimization solver. The solver explicitly treats uncertainties using a stochastic programming approach with chance nodes depicted as a Nature player who moves randomly. The methodology is demonstrated through a Transition Game that features tradeoffs between investments in competing reprocessing and waste disposal technologies, dynamic reactor deployment responses to resolutions in reactor capital cost uncertainty, and the influence of capital subsidies on the future nuclear technology mix. Each player in the game uses a unique set of decision criteria to identify optimal near-term hedging strategies that consider all of Nature’s possible moves as well as the other player’s available decisions. These hedging strategies balance the exchange between the risk of immediate action and delay and maintain flexibility to allow for intelligent recourse decisions once uncertainties are resolved. Results from the Transition Game indicate that early transition to high-temperature gas-cooled reactors is preferred, with the option to abandon the transition following a learning period if capital costs are unfavorable. Under these conditions, transition to used fuel recycling in sodium-cooled fast reactors may be spurred by policy incentives under some certain decision criteria weightings. Otherwise, operating with a baseline set of decision criteria weightings, transition to a closed fuel is never observed when players hedge optimally against Nature’s moves. It is only when players have perfect information regarding Nature’s future moves will transition to a closed fuel be observed.
Blackjack : an application of Monte Carlo simulation to gaming strategies involving risk
(1982) Schwarz, Ronald David; not available
Commitment and conflict
(2013-12) Krainin, Colin Henry; Wiseman, Thomas E., 1974-
War is an inefficient outcome and therefore states ought to prefer to bargain over areas of conflict instead of fighting. However, in the anarchy of international relations there is no actor with a monopoly of power to enforce contracts between states. States then face a commitment problem when bargaining to prevent war. This dissertation explores three models where this commitment problem can lead to war. The first chapter presents a model that allows for shifts in the distribution of power which play out over an arbitrary number of time periods. This leads to a sufficient condition that implies war under a broader set of conditions than previously shown in the literature. This condition implies that preventive war may be caused by relatively slow, but persistent shifts in the distribution of power. As theorized in power transition theory, differential rates of economic growth can potentially cause war under this mechanism. Relaxing the unitary actor assumption of the first chapter, the second chapter analyzes how the domestic institutional structure of countries affects the likelihood of war. We model institutional divergence by comparing an infinitely lived dictatorship to a democracy with a replaceable leader and allow a range of leader incentives within these institutional frameworks. We show that dictators, even welfare maximizing ones, may lead to war if the initial distribution of resources is highly imbalanced whereas a democracy with a forward looking electorate is always peaceful. Yet when a democratic electorate is myopic, preventive war may result. Political parties act as a mechanism to prevent this outcome. In the third chapter, I investigate adding a third actor to the bargaining model of war. In a static setting, the model uses a notion of cooperative stability to predict balancing and bandwagoning behavior in alliance formation. When extended to a dynamic setting, changes to the system that result in alliance shifting may cause war. Additionally, alliance formation need not correspond to the static solutions, suggesting that the dynamics of power are as important as the distribution of power in alliance formation.
Coping with dynamic membership, selfishness, and incomplete information: applications of probabilistic analysis and game theory
(2008-05) Dimitrov, Nedialko B.; Plaxton, C. Greg
The emergence of large scale distributed computing networks has given increased prominence to a number of algorithmic concerns, including the need to handle dynamic membership, selfishness, and incomplete information. In this document, we outline our explorations into these algorithmic issues. We first present our results on the analysis of a graph-based coupon collecvi tor process related to load balancing for networks with dynamic membership. In addition to extending the study of the coupon collector process, our results imply load balancing properties of certain distributed hash tables. Second, we detail our results on worst case payoffs when playing buyersupplier games, against many selfish, collaborating opponents. We study optimization over the set of core vectors. We show both positive and negative results on optimizing over the cores of such games. Furthermore, we introduce and study the concept of focus point price, which answers the question: If we are constrained to play in equilibrium, how much can we lose by playing the wrong equilibrium? Finally, we present our analysis of a revenue management problem with incomplete information, the online weighted transversal matroid matching problem. In specific, we present an algorithm that delivers expected revenue within a constant of optimal in the online setting. Our results use a novel algorithm to generalize several results known for special cases of transversal matroids.
Delivery pricing and freight route optimization models for retail and logistics operations
(2018-05) Mohapatra, Chinmoy; Balakrishnan, Anantaram; Morrice, Douglas; Lai, Guoming; Sundaresan, Shankar
The growth of e-commerce platforms has created significant challenges and opportunities for retail and logistics firms. Retailers face the challenge of developing new revenue models to gain greater control of their supply chain and attract new consumers. Logistics service providers need efficient operational planning that ensures effective utilization of their valuable resources to provide better service quality and meet customer commitments. This dissertation develops optimization and economic models for three strategic and operational problems that retailers and logistics service providers face: scheduling shipments on a transportation network, deciding a retailer’s subscription pricing policy for free delivery services, and delivery pricing strategies for competing retailers. We first address (in Chapter two) a trip planning problem for freight railroads that entails determining the sequence of trains that each shipment takes to travel from its origin to destination. We formulate the trip planning problem as an integer program and consider several operating policies, the capacity of trains, and coordination requirements between shipments at transshipment points. We propose various modeling, methodological, and algorithmic enhancements to obtain good quality solutions quickly. We apply our solution approaches to real-life test instances and show the effectiveness of our modeling and algorithmic enhancements. In the third chapter, we study the subscription pricing problem for a retailer that offers a membership option for free delivery services. We develop models to understand the benefits, to both firms and consumers, of such free-delivery subscription (FDS) plans compared to the traditional pay-for-delivery (PFD) option, characterize the firm’s optimal FDS policy, and study the effects of product, consumer, and market characteristics on the firm’s profits and consumer surplus. Our analysis of two FDS pricing strategies – a single “Universal” plan or multiple “Tiered” plans with varying subscription fees and free delivery limits – leads to several interesting insights on the drivers and sensitivity of the optimal policy, profits, and market share to model inputs. Using the subscription pricing model and the consumer decision framework developed in Chapter 3, we develop a game-theoretic framework in Chapter 4 to study competition between two retailers who can offer consumers different delivery payment choices. We demonstrate that the firms can avoid aggressive price competition by offering complementary delivery pricing options in a Stackelberg equilibrium. We characterize the equilibrium delivery pricing policies for both retailers as the market, consumer, and product characteristics change and develop interesting insights on the role of different delivery pricing levers
Design and performance of resource allocation mechanisms for network slicing
(2018-09-14) Caballero Garces, Pablo; De Veciana, Gustavo; Banchs Roca, Albert; Andrews, Jeffrey G; Baccelli, Francois; Shakkottai, Sanjay; Hasenbein, John J
Next generation wireless networks are expected to handle an exponential increase in demand for capacity generated by a collection of tenants and/or services with heterogeneous requirements. Multi-tenant network sharing, enabled through virtualization and network slicing, offers the opportunity to reduce operational and deployment costs, and the challenge of managing resource allocations among multiple tenants serving possibly mobile diverse customers. When designing shared radio resource allocation mechanisms, it is as important to provide tenants with customization and isolation guarantees, as it is to achieve high resource utilization and to do so via low complexity and easy to implement algorithms. This thesis is devoted to the design and analysis of resource allocation mechanisms that meet these objectives. We propose a sharing model in which tenants are assigned a share/budget of a pool of network resources. This share is then redistributed in the form of weights amongst users, which in turn drive dynamic resource allocations which are partially able to adapt to the traffic demands on, and requirements of, different slices customer populations. We propose and analyze two approaches for redistributing slices’ share among customers which we classify into their associated (i) cooperative, and (ii) competitive resource allocations. In the cooperative resource allocation setting, a pre-established policy is proposed, in which resources are eventually assigned in proportion to the slice’s share and the relative number of active users in currently has at a resource. This is shown to be socially optimal in a particular setting and simple to implement, with statistical multiplexing gains that increase with the number of tenants and the size of the resource pool. These gains stem from the ability of the scheme to adapt to dynamic loads leading to an up to 50% network capacity savings with respect to static allocations. We further improve these gains by presenting a framework that combines resource allocation and wireless user association which uses limited computational, information, and handoff overheads. However, using our cooperative scheme over a large pool of resources restricts the degree to which a slice can differentiate its customers’ performance at a per resource level. Thus, we study how this trade-off affects the network utility and propose a mechanism to determine an optimal partition the resources into a collection of self-managed pools under cooperative resource allocations. Our competitive resource allocation approach enables tenants to reap the performance benefits of sharing while retaining the ability to customize their own users’ allocations. This setting results in a network slicing game in which each tenant reacts to the user allocations of the others so as to maximize its own customers’ utility. We show that, under appropriate conditions, the game associated with such strategic behavior converges to a Nash equilibrium. At the Nash equilibrium, a ten- ant always achieves the same, or better, utility than it could achieve under a static partitioning of resources, hence providing the same level of inter-slice protection as static resource partitioning. The network utility of the equilibrium allocations is shown to be, under mild conditions, close to the socially optimal ones. The competitive resource allocation framework is complemented with a study on admission control policies that enable tenants to ensure minimum rate guarantees to their users. Our analysis and extensive simulation results confirm that our framework provides a comprehensive practical solution towards multi-tenant network slicing. We also discuss how our theoretical results fill a gap in the general resource allocation literature for strategic players.
Do monitoring schemes work? : modeling collective and private benefits under collective action
(2021-05) Behmer, Torben; Jensen, Nathan M. (Nathan Michael), 1975-
Does monitoring corruption work? If so, which types of monitoring schemes are most effective at reducing corruption? To answer these questions, we specifically focus on the collective action problem between citizens as they determine whether to report public officials' requests for bribes, or to give in to them. In exploring the ways in which monitoring mitigates citizen behavior, we introduce: (i) collective benefits that are subject to top-down principal-agent challenges; and (ii) private benefits that are subject to horizontal accountability challenges. These challenges notwithstanding, we then illustrate how citizens' optimal strategy may be altered in the presence of monitoring. Expanding on findings under full rationality, we calculate stability sets on the basis of citizens' beliefs in the others' willingness to cooperate. Contrary to existing research that advocates for "big bang" approaches and considers incremental ones as counterproductive, we find that even incremental monitoring interventions mitigate corruption by making citizens more likely to report bribe requests. Moreover, we illustrate under what circumstances investment in collective, or private, benefits is more efficient policy. A byproduct of the stability set approach, our model is remarkably flexible, and appears capable of explaining transitions to low corruption equilibria around the globe. Our results suggest that monitoring corruption is not only a good use of scarce resources but that success is mainly a matter of policy design.
The Durability of Public Goods Changes the Dynamics and Nature of Social Dilemmas
(Public Library of Science, 2007-07-04) Brown, Sam P.; Taddei, François
An implicit assumption underpins basic models of the evolution of cooperation, mutualism and altruism: The benefits (or pay-offs) of cooperation and defection are defined by the current frequency or distribution of cooperators. In social dilemmas involving durable public goods (group resources that can persist in the environment–ubiquitous from microbes to humans) this assumption is violated. Here, we examine the consequences of relaxing this assumption, allowing pay-offs to depend on both current and past numbers of cooperators. We explicitly trace the dynamic of a public good created by cooperators, and define pay-offs in terms of the current public good. By raising the importance of cooperative history in determining the current fate of cooperators, durable public goods cause novel dynamics (e.g., transient increases in cooperation in Prisoner's Dilemmas, oscillations in Snowdrift Games, or shifts in invasion thresholds in Stag-hunt Games), while changes in durability can transform one game into another, by moving invasion thresholds for cooperation or conditions for coexistence with defectors. This enlarged view challenges our understanding of social cheats. For instance, groups of cooperators can do worse than groups of defectors, if they inherit fewer public goods, while a rise in defectors no longer entails a loss of social benefits, at least not in the present moment (as highlighted by concerns over environmental lags). Wherever durable public goods have yet to reach a steady state (for instance due to external perturbations), the history of cooperation will define the ongoing dynamics of cooperators.
The economics of beautification and beauty
(2013-05) von Bose, Caroline Marie; Wiseman, Thomas E., 1974-
The first chapter examines adolescent beauty as a potential originator of the observed wage premium for adult beauty and finds that adolescent beauty has its own separate effect on adult wages. Adolescent beauty also affects early human capital development, as evidenced by its significant impact on educational outcomes. Changes in beauty over time are shown to be positively correlated with changes in wages for full-time workers, and changes in beauty are generally not correlated with appearance-related choice variables. I explore the possibility that self-confidence and social capital are potential mechanisms through which adolescent attractiveness affects future wages but find that these do not change the magnitude of the effects of adolescent beauty, although they are of themselves significant determinants of wages. The second chapter examines the effects of personal grooming behaviors on earnings and shows evidence that these effects are due to persistent differences in preferences or productivity between workers displaying different grooming choices and not statistical discrimination on the part of employers. In a longitudinal sample of lawyers graduating from the same law school, men who wear glasses and men with facial hair face an earnings penalty in first-year income and to some extent in subsequent years. Some grooming behaviors are positively correlated with income in the 1970's cohort and negatively correlated with income in the 1980's cohort (and vice versa), suggesting that fashion signals change relatively quickly. I also find that grooming behaviors are correlated with beauty ratings and that the beauty premium is unaffected by earnings, but the estimated effects of some grooming behaviors partially result from their correlation with beauty. I do not find evidence that grooming behaviors act as a signaling mechanism in the labor market. The third chapter evaluates the claim that design piracy is beneficial to certain status-goods firms. It builds on Pesendorfer's model of fashion cycles by introducing the possibility of design imitation for a market in which designs are used as a signaling mechanism. There exist equilibria in which both the designer and imitator are active in the market, but there are no conditions under which imitation is profitable to the designer. Under some conditions the presence of a potential imitator will ensure that the designer does not produce at all.
Essays in dynamic experimentation
(2017-08-11) Domnenko, Gleb; Stinchcombe, Maxwell; Sibley, David S. (David Summer), 1947-; Wiseman, Thomas E; Whinston, Andrew B
Innovation and knowledge are critical for the development of the modern economy. I design and study dynamic models for the funding of new research under different economic conditions. In the first essay, I develops a model for the funding of R&D initiated by an entrepreneur. In the model, the funding is undertaken by a large homogeneous pool of investors. The entrepreneur can bank present investment funds for either future experimentation or diversion. R&D activities are not observable. There are two main conclusions. First, even when entrepreneurs have full bargaining power, commitment and incentive problems imply that R&D is usually inefficiently funded. Second, stronger reporting enforcement can be welfare enhancing and improves the outcomes for the entrepreneur. In the second essay, I study funding of the projects at the early stages of the startup development. I search for the best feasible contract that can be signed by the entrepreneur and the investor. The contract provides dynamic incentives to work on the risky project in the presence of convex effort costs, private valuations, and developed credit markets. I reveal that the best feasible contract satisfies three main properties: funding is provided independent of the project failure or success; private valuations are internalized; and the work on the project does not stop until the project succeeds. In the third essay, I study how venture capitalists provide funds to entrepreneurs to finance risky projects that exhibit diminishing returns to scale. I show that the funding rates strictly decrease in time in the full information and the observable but unverifiable information environments. In the unobservable information environment, the funding rates eventually become strictly decreasing, but they may increase in the beginning.
Essays on ad-supported business model competition, cost asymmetry and forward trading
(2011-05) Ke, Xuqing; Hendricks, Kenneth; Whinston, Andrew B.; Abrevaya, Jason; Gu, Bin; Miravete, Eugenio J.; Wiseman, Thomas E.
This dissertation explores several aspects of the theory in industrial organization. The first chapter builds a model with two cost asymmetric firms who not only have Cournot competition in the spot market but also have the opportunity to trade forward contracts. It is shown that with forward trading, low cost firm not always produces more than high cost firm. In an interior equilibrium, both total output and consumer welfare increase compared to the case without forward trading. When cost function is linear, forward trading is socially beneficial in that low cost firm has higher market share as well as profit share, and that total output, consumer welfare and social welfare increase. The second chapter analyzes duopoly firms' choices among ad-free and ad-supported service with different advertising displays: mandatory advertising where ads are integrated with the main content and cannot be dismissed by users; or optional advertising where users are allowed to dismiss ads at will. The model also takes into account the effect of consumers' heterogeneous ad tastes on their contribution to ad revenues. The results reveal that ad revenues intensify competition, suppress equilibrium prices and profits, and diminish the differentiation effect. The third chapter studies firms' business model choices and pricing decisions when they can choose to provide ad-free service, ad-supported service with cost-per-click (CPC) revenue model or cost-per-mille (CPM) revenue model, or a combination of them in monopoly or duopoly environment. It's shown that offering both types of ad-supported services is not an optimal strategy for a monopolist and that its optimal strategy is to vertically differentiate by providing an ad-supported service and an ad-free service. Furthermore, when the monopolist adopts the CPM-based ad revenue model, the price of the ad-supported service is more sensitive to increases in the marginal ad revenue than the case with the CPC-based model. In the equilibrium of competitive setting, exactly one firm offers an ad-supported service alone while the other firm offers the ad-free service with or without the same type of ad-supported service depending on the ad revenues.
Essays on competition, cooperation, and market structures
(2014-05) Lhost, Jonathan Richard; Sibley, David S. (David Summer), 1947-; Stahl, Dale O.
My dissertation examines competition, cooperation, and efficiency in three market settings in which a population of economic agents interact, either directly with each other in pairwise matches, directly with firms, or with firms via a platform. In one chapter I consider a population of customers who have different valuations for a good sold by competing merchants, as well as varying preferences over the merchant from which to purchase the good and the payment form with which to make the purchase, and examine what the effects might be if a merchant placed an additional surcharge on transactions completed with a payment form that is more costly for the merchant. The cost for the merchant can vary dramatically depending on the payment form used. For example, a credit card transaction is generally more expensive for the merchant than a debit card transaction, even if the transaction is completed using the same technology and is processed over the same network (e.g., a MasterCard signature debit transaction and a MasterCard credit card transaction). Historically, with limited exceptions, merchants have been prohibited, both by law and by the contract permitting the acceptance of that network's cards, from charging customers different prices for transactions completed using different payment cards, despite the different costs these transactions impose on them. Recent concessions made by several major payment networks in response to legal challenges raises the possibility that this paradigm might change in the future. This chapter examines what the effects might be if merchants were permitted to charge customers different prices based on the payment form and whether these effects depend on differences between the merchants, such as differences in the marginal cost of providing the good. In another chapter, I consider a population of individuals made up of more-patient and less-patient types who interact directly with each other in a repeated prisoner's dilemma embedded in a search model. A player is matched anonymously with another player to play a prisoner's dilemma game repeatedly until the match is ended, either exogenously or endogenously by one of the players, at which point each player may receive another random match. I first determine when it is feasible to achieve the best outcome in which all players cooperate. When it is not possible to achieve full cooperation, I examine how welfare can be improved over the outcome in which no players cooperate. When conditions are such that less-patient players choose not to cooperate, I first examine how separation by action within a single market can increase welfare for all players over the uncooperative equilibrium, with more-patient players choosing to cooperate in hopes of forming a cooperative relationship, despite the risk of being matched with a less-patient player who chooses not to cooperate. I then examine how full separation of the more- and less-patient players, made possible by introduction of a second market, can increase the welfare of the more-patient players without harming the less-patient players. In a third chapter, customers choose to purchase a good from one of several competing firms in a setting in which network congestion and firms' investment in capacity plays an important role in firm costs and product quality, e.g., the wireless industry. Wireless carriers (e.g., Verizon) compete not only on the price of their service but also on its quality. The quality of a carrier's service is determined in part by the quantity of customers it serves and by investment in capacity with which to serve them. While the primary effect of a carrier increasing its capacity is an increase in that carrier's service quality, there are also externality effects on other wireless carriers. For example, if carrier A increases its capacity, thereby increasing its service quality, and causes some customers to leave a competing carrier B, the service quality experienced by customers who remain with carrier B will increase as a result of the decreased congestion in carrier B's network. This chapter examines the interplay between these effects alongside traditional price competition in this oligopoly setting.
Essays on externalities and international cooperation : a game theoretic approach
(2015-05) Klis, Anna Alexandra; Stinchcombe, Maxwell; Wiseman, Thomas E; Stahl, Dale O; Ryan, Stephen P; Moser, Scott J
In this dissertation, I present three essays which examine questions in the field of public economics using a game theoretic approach, and I derive hopeful results and helpful rules for international negotiation. In my first chapter, I examine minimum participation constraints. In the presence of heterogeneity, a minimum participation (MP) clause in a public goods arrangement can serve as a device to create a more homogeneous group. When coalitions are restricted in what they can bargain over, exclusion of some agents from the bargaining process can be Pareto improving. This paper gives a general set of sufficient conditions for such an exclusion result to hold, and presents examples of when exclusion does, and does not, improve upon unanimity. In the second chapter, I discuss the problem of determining which externality situations merit international cooperation. I create a general framework of linearized parameters to examine a general externality problem, and then I provide the sufficient conditions for a parameter to move non-cooperative and cooperative solutions in opposite directions under certain circumstances. I argue that situations which behave in this manner and which have a higher parameter value have more benefit to cooperation through the increased range in actions to bargain over. The third chapter extends upon the second chapter and applies the framework developed to an externality problem. I present a particular story of correlation in fish growth and a corresponding model which gives an example of an increasing action gap. I describe the method of use of the framework, and using the linearized parameters developed in the second chapter, I attempt to show the divergence of non-cooperative and cooperative actions in this setting, demonstrating the need for negotiation among sovereign entities.
Essays on firm strategies and consumer dynamics in socially embedded technology networks
(2013-05) Mukherjee, Rajiv, active 2013; Barua, Anitesh
It is of deep interest to researchers and practitioners in Information System (IS) to understand the efficacy of the traditional IS and economics theory in modern business environments such as online social networks. In the pursuit to understand such new IS phenomenon and address the gap in extant literature, my dissertation, identifies the strategies that the firms should incorporate in the presence of network effects; i.e., the increases in benefits accrued by a network user with an increase in the number of users, and its impact on consumer behavior. My first essay, challenges the traditional notion that network effects create a strong protective moat for the incumbent in network competition. I show that network effects are over rated in multi-homing setting, where users can co-exist across multiple networks under resource constraints. Over reliance on the strength of network effects by the incumbent firm in multi-homing setting, stems from extant economic theory that is applicable to single homing networks, where users has to choose one of the available networks. The first essay recommends strategies for the level of innovation and its time of delivery that firms should incorporate in order to survive and succeed in multi-homing environment. While the first essay focuses on multi-homing and the strength of network effects, the second essay revisits firm's preemption strategy in single homing setting with network effects, in order to prevent its users from migrating to a new entrant with better technology. I find that, for moderate levels of price and innovation competition, an incumbent with high reputation is better off being non-committal in its preemption. In contrast, committal preemption is apt for other combinations of reputation, innovation and price. While the first two essays focus on the impact of consumer behavior on firm strategies, the third essay delves into the impact of firm strategies on consumer behavior. In particular, I identify identity revelation policies that increase the number of successful transactions and collaborations in a socially embedded marketplace. The results imply that revealing social identities may be detrimental to negotiation and collaboration in a socially embedded marketplace -- a notion that is counter intuitive to networks that are inherently social.
Essays on information economics and game theory
(2024-05) Zhou, Yihang ; Bhaskar, V. (Venkataraman); Fuchs, William; Thomas, Caroline; Wiseman, Thomas
This dissertation consists of four chapters on the topic of information economics and game theory. I investigate Bayesian inference and persuasion restricted by a bureaucratic norm, strategic experimentation amidst private information, multiple-buyer bargaining influenced by concave utility, and cheap talk in contexts involving naïve players. By leveraging rigorous theoretical models, I aim to uncover the underlying mechanics of strategic interactions and the pivotal role of information dissemination in diverse economic contexts. Chapter 1 looks at an information design problem. In this model, a developer seeks to persuade a welfare-maximizing bureaucrat to award a contract to her. The official has a short tenure, and his successor's decisions are subject to a bureaucratic norm: an official's decision must be based on evidence that is either recorded by his predecessor or presented to him. Thus, Bayesian inference is restricted when the first official fails to record evidence. The first official can exploit this and induce the developer to conduct more informative experiments. I focus on parameter values where the static values of persuasion are zero to the bureaucracy and strictly positive for the developer. I show that there are two possibilities in the dynamic game. Either the developer conducts a more informative experiment and the official decides immediately, so that social welfare is greater. Or there is delay, where the cost of delay to the bureaucracy offsets the benefits of a more informed decision. In either case, the developer is worse off compared to static persuasion. With unrestricted inference, there exists an intuitive PBE that replicates the static outcome, so that the bureaucratic norm may increase social welfare and never reduces it. Chapter 2 studies a symmetric two-player game of strategic experimentation where both players have private information. I find that two-sided private information improves welfare, both at the ex ante and interim stages, by mitigating the free-rider problem. Furthermore, in some states of the world, there may be over-experimentation, i.e., players may experiment more than the social planner would under complete information. Chapter 3 is joint work with David Sibley. This chapter looks at a situation where s seller bargains with two buyers to make a deal with each of them, using an alternating-offer protocol (“AO”). The bargaining begins with one buyer, with the second entering at a future date. The seller has a concave utility function defined over total payments from buyers, so the two bargains affect each other. When the seller’s utility function exhibits decreasing absolute risk aversion, a higher price in the first bargain increases the price in the subsequent bargain. Even if two players are identical except for the arrival date, they will make different payments to the seller. The shape of the utility function and the arrival date determine whether there is a first or second-mover advantage. Although agreements in our model are reached on different dates, the usual limit payoffs for AO do not approach those of the sequential Nash bargaining solution. Finally, we extend the model to a vertical market, in which an upstream seller supplies downstream buyers with critical input. These buyers compete with each other in the downstream market. We find that, even if the buyers are symmetric Cournot competitors, the equilibrium of the model is asymmetric, with one buyer paying more than the other. With some utility functions of the seller, prior to entry by the second firm, the price set by the incumbent can decrease with the increased expected entry dates. Standard vertical models would not predict this. Chapter 4 endogenizes the probability of the receiver blindly believing in the sender by allowing the sender to increase this naivety probability at a cost, based on the cheap talk model with naive receivers who take the message at face value in Ottaviani and Squintani (2006). When the probability chosen is observed by receivers, receivers can benefit from this ability of the sender, and a fully revealing equilibrium is possible. But this ability of the sender damages information transmission and removes the fully revealing equilibrium if the probability is not observable. These results can explain how information is conveyed in advertising when the advertiser can design the content of advertising as well as use extra expenditure to affect the consumers' gullibility.
Essays on observational learning
(2020-05-05) Wang, Xuanye; Bhaskar, V. (Venkataraman); Wiseman, Thomas; Stahl, Dale; Sirbu, Mihai
People's payoffs are often jointly determined by their action and an unobserved common payoff relevant state. To adopt a promising technology is profitable; to adopt an incompetent technology is a waster of money. By observing other people's choices, one person could infer the hidden information behind these choices and make a potentially better decision. In the meanwhile, his/her choice gives out his/her private information as well. Economists are interested in whether private information spread among the entire society could aggregate if only actions rather than information are observable. In other words, economists care about whether the society can learn the true payoff relevant state after observing a large number of informed actions. In the first chapter, we analyze the question of information aggregation when a fraction of players are naive and act based exclusively on their private information. Rational players are uncertain about the true proportion of naive players. They simultaneously learn about this proportion and about the payoff-relevant state. We find that confounded learning emerges as a robust phenomenon in this environment. That is, in the long run, positive weights are assigned to more than one states. Any observable actions happen with equal probabilities across these states. Thus, even if players still use private information to decide, this information is lost by just observing actions. We further studied the dynamic property of a confounded learning belief and find that it could be globally stable-there're environments where public beliefs eventually settle down to confounded learning with positive probability, starting from almost all current beliefs. We also show that correct learning is always globally stable. In contrast, correct learning may not be globally stable when it arises due to heterogeneous preferences as in [24] In the second chapter, we study the robustness of confounded learning. We found that confounded learning is fragile in presence of public random payoff shocks. For a quite general set-up, we prove the existence of a public shock that can make any confounded learning belief instationary, and hence cannot be a long run limit belief. In practice, this means that a social planner can create a tax/subsidy scheme to eliminate confounded learning in most observational learning environments. In the third chapter, we studies the convergence property of public beliefs. It is a standard technique to explore the martingale property of public beliefs λ [subscript t] to obtain almost surely convergence. We restrict ourselves to a two states two action model and ask whether we can strength the almost surely convergence to convergence in L¹. This is not true if the model is not biased in some sense. We invent a method to show that [mathematical equation].
Essays on political competition
(2013-05) Roeder, Oliver Kelly; Wiseman, Thomas E., 1974-
The three branches of American government---judicial, legislative, and executive---serve important governmental roles, and present their own interesting political questions. We answer three here. First, what are the differences between judges and politicians, and how does this inform the formers' selection? Second, how do senators behave to satisfy their political preferences and the electorate's? Third, what is the optimal strategy for a candidate in the Electoral College? American states select judges in various ways. In Chapter 1, we analyze "merit selection." Typically, a nonpartisan commission culls applicants for judgeships, and an appointee is selected by the governor. Then, periodically, this judge undergoes a retention election: an up-or-down vote by the state's electorate. We contribute a microeconomic model to analyze these elections. We compare this institution, in welfare terms, to others used to appoint and retain judges. Finally, we analyze a recent and ongoing phenomenon: these elections are transforming from historically rubber stamp formalities into contested, politicized contests. The politicization of issues brought before courts increases the likelihood of judges being ousted. In Chapter 2, we explore the behavior of legislators in the U.S. Senate, and of the voters who elect them. We examine shifts in incumbent senators' espoused political positions over time, as the reelection campaign approaches. We introduce novel game theoretic models of incumbent-challenger interaction. We find, through empirical analysis of senators' roll call votes, that senators moderate their positions over time, as potential reelection approaches. Moreover, this moderation accelerates. This is explained by the behavior of voters: the moderation is mirrored by the attention paid by voters. Also, the identity of an incumbent's challenger plays an important role in the amount of moderation exhibited by the incumbent. In Chapter 3, we consider a highly adaptable game theoretic model of competition in the Electoral College. It takes the form of a repeated game. Candidates make allocation decisions to persuade voters. Candidates get utility from winning office, and disutility from expending resources. We characterize optimal campaign strategy, and present comparative statics. We show, inter alia, that a candidate with an inherent advantage may prefer a longer campaign.
Essays on strategic interactions between firms in the presence of competition
(2020-08) Hotkar, Parshuram Sambhajirao; Gilbert, Stephen M.; Gupta, Diwakar; Balakrishnan, Anantaram; Rao, Raghunath
Strategic interactions between competing players of supply chains are studied in this dissertation in the context of supplier encroachment and forced information sharing. Although there has been extensive study of supplier encroachment, our study is the first to explicitly consider the possibility that a reseller sells more than one product, which occurs often in practice. In the first two essays, we develop a model of two suppliers who sell partially substitutable products through a single reseller, and allow for one of them to introduce its own direct channel. We find that the presence of the second supplier alters many of the existing results about the interactions between a reseller and an encroaching supplier. In the third essay, in the context of drug shortages, we investigate the role of information sharing between manufacturers about their supply disruptions. The quality problems and disruptions in capacity are the most prevalent cause of shortages of sterile injectable drugs. The capacity decision in the manufacturing facility has a significant impact on the availability of the drug, and thereby on the drug shortages. Therefore, we model the capacity decisions of manufacturing firms in terms of reliable and unreliable capacities, and study their impact on the supply of drugs. We quantify the benefit of the mitigation strategies such as forced information sharing and tax subsidies.