Inferring repeated-game strategies from actions: evidence from trust game experiments

Summary. Combining a strategy model, an inference procedure and a new experimental design, we map sequences of observed actions in repeated games to unobserved strategies that reflect decision-makers’ plans. We demonstrate the method by studying two institutional settings with distinct theoretical predictions. We find that almost all strategies inferred are best responses to one of the inferred strategies of other players, and in one of the settings almost all of the inferred strategies, which include triggers to punish non-cooperators, are consistent with equilibrium strategies. By developing a method to infer unobserved repeated-game strategies from actions, we take a step toward making game theory a more applied tool, bridging a gap between theory and observed behavior.Received: 23 December 2002, Revised: 19 April 2005, JEL Classification Numbers: C72, C80, C90.The authors are indebted for discussions with Ray Battalio, David Cooper, Robin Dubin, John Duffy, Ellen Garbarino, Susan Helper, Margaret Meyer, John Miller, Jim Rebitzer, Mari Rege, Al Roth, and John Van Huyck. The authors also benefited from discussants at economic department seminars at Case Western Reserve, McMaster and McGill University, University of Pittsburgh, SUNY-Stony Brook, and Texas A&M, and participants at the 2002 European Winter Meeting of the Econometric Society. We are grateful for the financial support provided by the Department of Economics at the University of Pittsburgh and Case Western Reserve University.     

Australian Audit Committees — Do They Meet Best Practice Guidelines?

The paper reports the results of a study of Australia's largest 250 companies' audit committees in two years (1998 and 2001). The audit committees were scrutinised on the bases of audit committee independence and the frequency of meetings. Australia's audit committees did not score highly on either criterion and most companies fell short of best practice guidelines. Further, it was puzzling and of concern that Australian audit committees appear to have deteriorated in terms of independence and frequency of meetings between 1998 and 2001.     

ECONOMIC EFFECTIVENESS OF BRAND ADVERTISING PROGRAMMES FOR U.S. ORANGE JUICE IN THE EUROPEAN MARKET: AN ERROR COMPONENT ANALYSIS

An econometric model is used to measure the impact of the Three-Party Programme on European demand for U.S. orange juice. The results show that the programme has helped expand the demand for orange juice in European countries and, from the viewpoint of the U.S. citrus industry, is an economically preferred way of generating additional exports compared with using price reductions to achieve additional sales.     

An empirical analysis of the relationship between the hedge ratio and hedging horizon: A simultaneous estimation of the short‐ and long‐run hedge ratios

This article analyzes the effects of the length of hedging horizon on the optimal hedge ratio and hedging effectiveness using 9 different hedging horizons and 25 different commodities. We discuss the concept of short‐ and long‐run hedge ratios and propose a technique to simultaneously estimate them. The empirical results indicate that the short‐run hedge ratios are significantly less than 1 and increase with the length of hedging horizon. We also find that hedging effectiveness increases with the length of hedging horizon. However, the long‐run hedge ratio is found to be close to the naïve hedge ratio of unity. This implies that, if the hedging horizon is long, then the naïve hedge ratio is close to the optimum hedge ratio. © 2004 Wiley Periodicals, Inc. Jrl Fut Mark 24:359–386, 2004     

‘Double marginalization’ problems: evidence from the Korean fixed-to-mobile service market

In this paper, examination of the possibility of a ‘double marginalization’ problem existing in the Korean telecommunication industry is conducted and suggestions are made for the provision of a new scheme to eliminate this possibility by changing the pricing system for fixed-to-mobile calls. Based on five key economic characteristics in the Korean mobile market, a simple model for double marginalization in the telecommunication market is introduced. Evidence was found to suggest that a double marginalization problem is likely to exist within Korea's telecommunication industry as it is presently structured, and that this problem is further likely to have an adverse effect on the industry by inflating the price of fixed-to-mobile calls. Two alternatives are proposed to effectively remedy this double marginalization issue. It is also shown that prices of fixed-to-mobile calls could be lowered by changing the caller pays principle into a receiver pays principle.     

Economic Comparison of Alternative Tillage Systems under Risk.

Stochastic dominance efficiency criteria are used to rank the net farm return distributions for four different tillage systems under six different farm scenarios. Pairwise comparisons of tillage systems are carried over incremental upper and lower risk-aversion coefficient (RAC) bounds identified for each farm scenario, based on the size and spread of the outcome distributions to identify regions where dominance may switch between tillage systems. Ridge-till systems are generally the dominant tillage system for all farm scenarios considered. No-till systems on clay loam soils are more dominant in the risk-preferring range and less dominant in the risk-averse range, which relates to the relatively larger range of net return values and smaller mean net return values generated by this tillage system. Conversely, the moldboard plow and chisel plow systems are more dominant in risk-aversion intervals and less dominant in the risk-preferring intervals for clay loam soils. In sandy soil scenarios, the ridge-till and no-till systems are dominant over the two fall tillage systems for all farm sizes, indicating that these tillage systems are more competitive with conventional tillage systems in lighter soil type situations. A sensitivity analysis between moldboard plow and no-till systems indicates that no-till would dominate in risk-preferring intervals, and an increase in no-till net farm returns of 16 per acre would change dominance in favor of no-till in risk-averse interval space. On a utilisé les critères d'efficacitéà dominance stochastique pour classer les divers niveaux de recettes agricoles nettes dans quatre systèmes différents de travail du sol, selon six scénarios d'exploitation. Des comparaisons en paires des systèmes de travail ont été faites en regard de tranches croissantes des limites supérieures et inférieures du coefficient d'aversion du risque (CER), établies pour chaque scénario d'après l'importance et l'étendue des distributions du rendement, dans le but d'identifier les régions où la dominance serait susceptible de passer d'un système de travail à l'autre. Le système de travail sur billons était en général le système dominant dans tous les scénarios d'exploitation examinés. La culture sans travail du sol sur loam argileux était plus dominante dans les intervalles d'acceptation du resque et moins dominante dans les intervalles d'aversion du resque, cequi s'explique au fait que ce système de travail donne lieu à une fourchette relativement plus large, mais aussi à une moyenne plus faible du revenu net. À l'inverse, le labour à la charrue classique et au chisel dominait davantage dans les intervalles d'aversion du risque. Dans les sols sableux, le travail sur billons et la culture sans labour l'emportaient sur les deux autres régimes dans toutes les tailles d'exploitation, ce qui porte à croire que, dans les sols plus légers, ces régimes sont plus concurrentiels avec les systèmes classiques. L'analyse de sensibilité entre le labour à la charrue et les systèmes sans travail du sol montre que ces derniers dominent dans les intervalles d'acceptation du risque et qu'un accroissement du revenu agricole net de 16 /acre ferait glisser la dominance vers les intervalles d'aversion du risque.     

Stock Market Reactions to SFAS No. 96: Evidence from Early Bank Adopters

Statement of Financial Accounting Standards (SFAS) No. 96, “Accounting for Income Taxes,” issued by the Financial Accounting Standards Board (FASB) in December 1987 changed accounting for income tax recognition and accrual. The original deadline for implementation of SFAS No. 96 was December 15, 1988, and earlier adoption was encouraged. This study examines empirically the stock price impact of four pertinent announcement dates regarding SFAS No. 96 for 19 banks that adopted the statement in late 1987 and early 1988. Our results suggest that these early bank adopters have different characteristics from other banks that cause them to benefit from the changes in accounting for deferred taxes and explain their voluntary adoption of the standard.     

Privatization in China's industry

This paper adopts property rights and organization theory perspectives to analyze the process of privatization of state enterprises and performance of newly created shareholding corporations in China. Relying on case study information, the paper concludes that although the shareholding corporations have contributed, to a certain extent, to better performance, their potentials have not been fully realized due to various economic environmental and ideological constraints.