Increasing Dominance with No Efficiency Effect

I uncover a new force towards increasing dominance (the property whereby, in dynamic games, the leader tends to increase his or her lead in expected terms). The new effect results from the strategic choice of covariance in races. I assume that players must choose not the amount of resources to spend but how to allocate those resources. I show that, in equilibrium, the laggard chooses a less promising path, in effect trading off lower expected value for lower correlation with respect to the leader. This results in increasing dominance and holds true even if no joint-payoff (or efficiency) effect is present. Journal of Economic Literature Classification Numbers: C7, L1.     

Adaptive Learning and Iterated Weak Dominance

This article addresses the idea that rational players should not play iteratively weakly dominated strategies by showing that when a particular type of adaptive learning process converges, then players must have learned to play strategy profiles equivalent to those that survive iterated nice weak dominance and, for certain games, equivalent to those that survive iterated weak dominance. For games satisfying the weak single crossing condition, the set of strategies that survive iterated weak dominance is small in that its bounds are pure strategy Nash equilibria. The results hold regardless of the order in which dominated strategies are eliminated.Journal of Economic LiteratureClassification Number: C72.     

Playing Cournot although they shouldn’t

Summary. In this note, we experimentally investigate the extended game with action commitment in a Cournot duopoly with asymmetric cost. Risk dominance considerations allow to select a unique equilibrium in which the low-cost firm is the Stackelberg leader. The data, however, do not support the theory as simultaneous-move play is modal. Average output choices are in line with the Cournot equilibrium. This suggests that Cournot is a much more robust predictor for competition in markets than theory suggests.Received: 14 October 2002, Revised: 1 December 2003, JEL Classification Numbers: C72, C92, D43. Correspondence to: Hans-Theo Normann     

Capital Accumulation in a Stochastic Overlapping Generations Model with Social Security

This paper analyzes the impact of pay-as-you-go financed social security on the stochastic process for the capital stock in a stochastic overlapping generations model. It is shown that the probability distribution of the capital stock in absence of social security dominates that in a pay-as-you-go system in the sense of stochastic dominance. Furthermore, the study demonstrates that the sufficient conditions ensuring the existence and uniqueness of stationary equilibria in a pay-as-you-go system are more restrictive than in the model without social security. Journal of Economic Literature Classification Numbers: C62, H55.     

Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play

This paper presents results from a series of experiments designed to test the impact on subject behavior of changes in the risk dominance and payoff dominance characteristics of two player coordination games. The main finding is that changes in risk dominance significantly affect play of the subjects, whereas changes in the level of payoff dominance do not. Observed history of play also has an important influence on subject behavior, both when subjects are randomly rematched after each game and when they remain matched with the same individual for a sequence of games.     

Incentive monotonicity and equilibrium selection in 2×2 matrix games

For the class of 2×2 matrix games with two strict Nash equilibria the paper introduces an equilibrium refinement called incentive monotonicity. It selects the risk-dominant equilibrium if interests are conflicting, while it remains silent in games with common interests. These results suggest that the equilibrium-selection problem might be more difficult in games with common interests, which is certainly the case if risk dominance and payoff dominance go in opposite directions.     

Payoff dominance and risk dominance in the observable delay game: a note

We examine whether the payoff dominant sequential-move (Stackelberg) outcome is realized when timing is endogenized. We adopt the observable delay game formulated by Hamilton and Slutsky [Games Econ Behav 2(1):29–46, 1990]. We find that if one sequential-move outcome is payoff dominant, either (i) the outcome both players prefer is the unique equilibrium; or (ii) two sequential-move outcomes are equilibria and the one both players prefer is risk dominant. In other words, no conflict between payoff dominance and risk dominance in the observable delay game exists, in contrast to other games such as (non pure) coordination games. We also find that even if one of two sequential-move outcomes is the unique equilibrium outcome in the observable delay game, it does not imply that the equilibrium outcome is payoff dominant to the other sequential-move outcome.      

On forward induction in money-burning games

Summary. We first consider money-burning games studied by Ben-Porath and Dekel [6]. We show that iterative weak dominance and extensive form rationalizability yield the same unique outcome in this class of games. This result suggests that weak dominance captures the forward induction logic implied by extenisve form rationalizability. Next, we consider an example of entry model by Arvan [1] to demonstrate the power of forward induction. In this example, despite the presence of multiple equilibria, forward induction chooses a unique outcome. Received: January 25, 2000; revised version: January 5, 2001     

Satisficing and optimality in 2×2 common interest games

Summary. The paper studies the evolution of cooperation when satisficing players repeatedly play a symmetric two-by-two game of common interest. We show that if initial aspiration levels are sufficiently close to the efficient payoff and aspiration adjusts at a sufficiently slow speed then the unique long run state will be the efficient outcome. In the special case of coordination games, the more tension there is between payoff dominance and risk dominance, the longer it takes for the system to lock into the payoff dominant outcome. Received: June 23, 1997; revised version: November 19, 1997     

A Behavioral Learning Process in Games

This paper studies the cumulative proportional reinforcement (CPR) rule, according to which an agent plays, at each period, an action with a probability proportional to the cumulative utility that the agent has obtained with that action. The asymptotic properties of this learning process are examined for a decision-maker under risk, where it converges almost surely toward the expected utility maximizing action(s). The process is further considered in a two-player game; it converges with positive probability toward any strict pure Nash equilibrium and converges with zero probability toward some mixed equilibria (which are characterized). The CPR rule is compared in its principles with other reinforcement rules and with replicator dynamics. Journal of Economic Literature Classification Number: C72.     

Stochastic dominance and decomposable measures of inequality and poverty

In this paper, we characterize some new links between stochastic dominance and the measurement of inequality and poverty. We show that: for second-degree normalized stochastic dominance (NSD), the weighted area between the NSD curve of a distribution and that of the equalized distribution is a decomposable inequality measure; for first-degree and second-degree censored stochastic dominance (CSD), the weighted area between the CSD curve of a distribution and that of the zero-poverty distribution is a decomposable poverty measure. These characterizations provide graphical representations for decomposable inequality and poverty measures in the same manner as Lorenz curve does for the Gini index. The extensions of the links to higher degrees of stochastic dominance are also investigated.     

Stochastic dominance and behavior towards risk: The market for Internet stocks

Internet stocks registered large gains in the late 1990s, followed by large losses from early 2000. Using stochastic dominance theory, we infer how investor risk preferences have changed over this cycle, and relate our findings to utility theory and behavioral finance. Our major findings are as follows. First, risk averters and risk seekers show a distinct difference in preference for Internet versus “old economy” stocks. This difference is most evident during the bull market period (1998–2000) where Internet stocks stochastically dominate old economy stocks for risk seekers but not risk averters. In the bear market, risk averters show an increased preference for old economy stocks, while risk seekers show a reduced preference for Internet stocks. These results are inconsistent with prospect theory and indicate that investors exhibit reverse S-shaped utility functions.     

Individual characteristics and behavior in repeated games: an experimental study

Using a laboratory experiment, we investigate whether a variety of behaviors in repeated games are related to an array of individual characteristics that are popular in economics: risk attitude, time preference, trust, trustworthiness, altruism, strategic skills in one-shot matrix games, compliance with first-order stochastic dominance, ability to plan ahead, and gender. We do find some systematic relationships. A subject’s compliance with first-order stochastic dominance as well as, possibly, patience, gender, and altruism have some systematic effects on her behavior in repeated games. At the level of a pair of subjects who are playing a repeated game, each subject’s gender as well as, possibly, patience and ability to choose an available dominant strategy in a one-shot matrix game systematically affect the frequency of the cooperate–cooperate outcome. However, overall, the number of systematic relationships is surprisingly small.     

Prudence, Justice, Benevolence, and Sex: Evidence from Similar Bargaining Games

Most learning experiments involve repeated play of exactly the same situation and, hence, can not discriminate between learning to use a deductive principle and other forms of routine learning. In this paper, subjects confront a sequence of similar, but not identical, bargaining games all of which can be solved using the same deductive principles. Conventions based on these deductive principles emerge within 70 periods in 5 of 26 eight-person cohorts. We found no economically significant differences between all male and all female cohorts. Journal of Economic Literature Classification Numbers: C72, C78, C92, D83.     

Cost-Effective and Stochastic Dominance Approaches to Stochastic Pollution Control

Most economic studies of pollution externalities focus on the relative efficiency or cost-effectiveness of alternative pollution control instruments. Much less attention has been paid to policy goals and objectives. However, a comprehensive pollution control strategy depends on all of these choices. This paper examines several efficiency properties of cost-effective pollution control strategies in a stochastic setting when economic damages from pollution are unknown. A number of policy goals are considered. In this setting and under a primal approach, it is found that certain stochastic dominance conditions must be satisfied for the strategies to exhibit desirable efficiency properties. A dual approach to cost-effective pollution control, which is based on a stochastic dominance objective, is also considered.     

EU-Russia Strategic Energy Culture: Progressive Convergence or Regressive Dilemma?

This article argues that strategic culture, long consigned to the margins of broader, more substantial IR theories, offers a novel mode by which to explore recent developments in EU-Russia energy relations. Approaching seminal strategic policies from the perspective of institutionalised norms and cultural value-sets, strategic culture explores the power of the past and its ability to produce and influence national attitudes in governments and societies. This enables analyses of strategic energy relations between actors like the EU and Russia to move beyond obvious polarities to nuanced insights about the national value sets by which energy security is itself rendered strategic. Beginning with the individual strategic cultures of both the EU and Russia within the area of contemporary energy security policies, the article then appraises the range of bilateral EU-Russia energy security policies, suggesting that in many ways, these shared policies constitute a sector-specific strategic energy culture that includes both the EU and Russia. Areas of ongoing intransigence and policy convergence in EU-Russia energy security approaches constitute the case studies, illustrating that both sides are essentially motivated toward the same goals of energy security, market prosperity and actor-based prestige, but on the basis of vastly different visions, using widely diverse modes of implementation, and with dissimilar standards of evaluation. The analysis then appraises whether this co-constituted area is progressive or regressive in terms of the cooperation or conflict generated between the two sides, concluding that a basis of acknowleged commonalities – made available through strategic culture perspectives – both sides retain the impetus to cooperate to the point of complete agreement on some areas, whilst simultaneously remaining in conflict to the point of aggression in others.     

Monotone equilibria in Bayesian games of strategic complementarities

For Bayesian games of strategic complementarities, we provide a constructive proof of the existence of a greatest and a least Bayesian Nash equilibrium, each one in strategies that are monotone in type. Our main assumptions, besides strategic complementarities, are that each player's payoff displays increasing differences in own action and the profile of types and that each player's interim beliefs are increasing in type with respect to first-order stochastic dominance (e.g., types are affiliated). The result holds for general action and type spaces (single-, multi-, or infinite-dimensional; continuous or discrete) and no prior is assumed. We also provide the following comparative statics result: the greatest and least equilibria are higher if there is a first-order stochastic dominant shift in the interim beliefs. We apply this result to strategic information revelation in games of voluntary disclosure.     

中国商业银行金融风险预警指标体系研究

当前,中国金融体制改革日益深化,商业银行的隐形风险也在日趋增加。根据2008—2010年中国商业银行的实证检验结果显示,中国商业虽然尚处于基本安全区域,但部分指标给出了风险信号。在中国金融市场不断与国际接轨的情况下应尽快建立全面的商业银行金融风险预警体系,并加强对商业银行金融风险的即时检测,以保证中国金融市场的安全。     

Measuring the severity of unemployment

A social-welfare (illfare) function framework is applied to compare two demographic groups as to the severity of their unemployment experience. This is based on the assumption that for each individual the disutility of unemployment is an increasing and convex function of spell length. The very concept of spell length and its distribution, however, is not unambiguous. In contrast to previous literature which focuses exclusively on the interrupted spell length in a stock of unemployed, we stress the usefulness of the concept of complete spell length in a cohort of unemployed. We establish an equivalence relationship between second-degree dominance in the cohort and first-degree dominance in the stock. For specific illfare functions the disutilityU(x) when applied to the cohort and the disutilityU(x) when applied to the stock will produce the same value of aggregate welfare (illfare).