Periodic Reporting for period 4 - Observable Stability (Evolutionary stability, observability, and efficiency)
Reporting period: 2021-04-01 to 2022-09-30
The existing literature mainly focuses on two kinds of interactions: short-term interactions in which the behavior today does not influence the future, and long-term interactions with the same partner. In the former model, the only stable outcomes are Nash equilibria (which are typically non-efficient), while the latter model allows one to achieve efficient outcomes. Many interesting situations lie somewhere in between, typically when people engage in short-term interactions but future partners may obtain some information about the behavior today. For example, how do people behave when interacting in one-off purchases in an online site with a feedback mechanism (e.g. eBay)?
In the recent 2.5 years I have worked on filling the large gap in the literature, by characterizing stable outcomes when players have limited information about the partner’s past, and how this stable behavior depends on the richness and the structure of the observed information. This helps to to shed new light on indirect reciprocity and its use to achieve efficiency in social dilemmas.
The research agenda includes several theoretical subprojects with various research questions, such as:
(1) Would non-material preferences be stable?
(2) What would be the influence of non-verifiable reports about past behavior?
(3) Which of the (locally) stable outcomes would be selected?
(4) What will happen in asymmetric interactions between professional sellers and non-experienced buyers?
The final subproject experimentally tests the various predictions and key implications.
In the recent 2.5 years I have worked on filling the large gap in the literature, by characterizing stable outcomes when players have limited information about the partner’s past, and how this stable behavior depends on the richness and the structure of the observed information. This helps to to shed new light on indirect reciprocity and its use to achieve efficiency in social dilemmas.
The research agenda includes several theoretical subprojects with various research questions, such as:
(1) Would non-material preferences be stable?
(2) What would be the influence of non-verifiable reports about past behavior?
(3) Which of the (locally) stable outcomes would be selected?
(4) What will happen in asymmetric interactions between professional sellers and non-experienced buyers?
The final subproject experimentally tests the various predictions and key implications.
Sub-project 1 (“Evolution of Subjective Preferences”) has been recently published as a paper titled "Observations on Cooperation" in the Review of Economic Studies (joint with Erik Mohlin). The paper shows surprising sharp predictions, one of which, is that always defecting is the unique equilibrium in one half of Prisoner’s Dilemma (called, offensive), while full cooperation is a robust equilibrium supported by intuitive novel behavior in the other half of Prisoner’s Dilemma (called, defensive).
In addition, I recently initiated a related work in progress with Arthur Robson titled “evolution and preference for local risk”, which studies how evolutionary forces shape the preferences of people with respect to interdependence of risk with respect to other people in the population.
Sub-project 2 (“observing non-verifiable reports”) has yielded the working paper titled “Promises and Endogenous Reneging Costs” (joint with David Sturrock). The paper shows the influence of non-verifiable reports on planned effort in partnership games, where we allow agents to have endogenous (observable) costs to renege on their promised planned effort.
Sub-project 3 (“costly deception ability”) has resulted in the published paper “Coevolution of Deception and Preferences: Darwin and Nash Meet Machiavelli” in Games and Economic Behavior (joint with Erik Mohlin). The paper constructs a novel model showing how deception and preferences might co-evolve together.
Sub-project 4 (”multiple locally stable outcomes”) has yielded the recently published paper “Social Learning and the Shadow of the Past” in the Journal of economic Theory (joint with Erik Mohlin). The paper characterizes the necessary and sufficient conditions for the initial behavior of the population has a lasting effect on social learning processes.
Sub-project 5 (“asymmetric interactions between separate populations”) has yielded the work in progress (which will become a working paper in the next couple of months) “Renegotiation and Coordination with Private Values”, which applies the notion of renegotiation-proofness to one-shot symmetric and asymmetric games with pre-play cheap talk, and shows that it yields a sharp and novel prediction for (symmetric / asymmetric) coordination games with private values.
Sub-project 6 (“bounded rationality & cognitive costs”) has resulted in the recently publication “biased belief equilibrium” (joint with Eyal Winter) in the American Economic journal: Microeconomics, which presents a novel solution concept to capture a new kind of bounded rationality and cognitive inconsistencies. According to this solution concept (1) each player chooses a best-response strategy to his distorted belief about the opponent’s strategy, and (2) the distortion functions form best responses to one another.
The final sub-project 7 is an experiment that will test the theoretical predictions of the project (with a focus on sub-project 1). The experiment will be run joint with Matthew Embrey and Erik Mohlin, and will study the behavior of about 700 subjects in interactions in which each agent is matched with a new anonymous partner in each round, and can observe the behavior of the partner her last two rounds. The experiment has obtained all the necessary ethical approvals. The pilot is expected to run later in this spring, and the full experiment will run in Septmebr 2019.
In addition, I recently initiated a related work in progress with Arthur Robson titled “evolution and preference for local risk”, which studies how evolutionary forces shape the preferences of people with respect to interdependence of risk with respect to other people in the population.
Sub-project 2 (“observing non-verifiable reports”) has yielded the working paper titled “Promises and Endogenous Reneging Costs” (joint with David Sturrock). The paper shows the influence of non-verifiable reports on planned effort in partnership games, where we allow agents to have endogenous (observable) costs to renege on their promised planned effort.
Sub-project 3 (“costly deception ability”) has resulted in the published paper “Coevolution of Deception and Preferences: Darwin and Nash Meet Machiavelli” in Games and Economic Behavior (joint with Erik Mohlin). The paper constructs a novel model showing how deception and preferences might co-evolve together.
Sub-project 4 (”multiple locally stable outcomes”) has yielded the recently published paper “Social Learning and the Shadow of the Past” in the Journal of economic Theory (joint with Erik Mohlin). The paper characterizes the necessary and sufficient conditions for the initial behavior of the population has a lasting effect on social learning processes.
Sub-project 5 (“asymmetric interactions between separate populations”) has yielded the work in progress (which will become a working paper in the next couple of months) “Renegotiation and Coordination with Private Values”, which applies the notion of renegotiation-proofness to one-shot symmetric and asymmetric games with pre-play cheap talk, and shows that it yields a sharp and novel prediction for (symmetric / asymmetric) coordination games with private values.
Sub-project 6 (“bounded rationality & cognitive costs”) has resulted in the recently publication “biased belief equilibrium” (joint with Eyal Winter) in the American Economic journal: Microeconomics, which presents a novel solution concept to capture a new kind of bounded rationality and cognitive inconsistencies. According to this solution concept (1) each player chooses a best-response strategy to his distorted belief about the opponent’s strategy, and (2) the distortion functions form best responses to one another.
The final sub-project 7 is an experiment that will test the theoretical predictions of the project (with a focus on sub-project 1). The experiment will be run joint with Matthew Embrey and Erik Mohlin, and will study the behavior of about 700 subjects in interactions in which each agent is matched with a new anonymous partner in each round, and can observe the behavior of the partner her last two rounds. The experiment has obtained all the necessary ethical approvals. The pilot is expected to run later in this spring, and the full experiment will run in Septmebr 2019.
A few examples for progress beyond the state of the art so far in the project are as follows. The published paper of sub-project 1 (Observations on Cooperation, mentioned above) presents an innovative methodology, which is novel in at least two aspects when studying population with random matching and observation of past actions: (1) the use of a stationary steady state in the setup of, and (2) the introduction of a new refinement of equilibrium, which requires robustness to of the equilibrium to the presence of few committed agents.
Sub-project 2 introduces a novel methodology to present a model that includes both observation of preferences and a costly ability to deceive the opponent about one’s preferences. Sub-project 5 adapts the refinement of renegotiation-proofness (previously applied only in repeated games and contracts with moral hazard) to coordination game with private values and pre-play cheap talk, and show, surprisingly, that this mild refinement yield a unique small family of renegotiation-proof equilibrium strategies.
We expect to further develop these, and other, novel state of the art aspects in the second half of the grant period.
Sub-project 2 introduces a novel methodology to present a model that includes both observation of preferences and a costly ability to deceive the opponent about one’s preferences. Sub-project 5 adapts the refinement of renegotiation-proofness (previously applied only in repeated games and contracts with moral hazard) to coordination game with private values and pre-play cheap talk, and show, surprisingly, that this mild refinement yield a unique small family of renegotiation-proof equilibrium strategies.
We expect to further develop these, and other, novel state of the art aspects in the second half of the grant period.