Dale O. Stahl

Experimental evidence on players' models of other players

Abstract We pose a hierarchial model of strategic thinking and conduct an experiment to test this theory as well as other solution concepts for symmetric (3 × 3) games. A level-0 type plays unpredictably, a level-1 type acts as if everyone else were level-0 types, and a level-2 type acts as if all other players were level-0 and level-1 types. In a model with level-0,…, level-2, and Nash types, we estimated that an insignificant portion of the participants were level-0 types, 24% were level-1 types, 49% were level-2 types, and the remaining 27% were Nash types.

A Stochastic Equilibrium Model of Internet Pricing

Abstract Perhaps the greatest technological innovation of the next several decades will be universal access and utilization of the Internet. Already congestion is becoming a serious impediment to efficient utilization. We introduce a stochastic equilibrium concept for a general mathematical model of the Internet, and demonstrate that the efficient social welfare maximizing stochastic allocation of Internet traffic can be supported by optimal congestion prices. We further demonstrate that approximately optimal prices can be readily computed and implemented in a decentralized system by constructing a large computer simulation model. We also address the alternative of building excess capacity to avoid congestion.

The economics of network management

Why are pricing issues the key to infrastructure investment and future growth of the Internet? The Economics of network management I t is not surprising that researchers in network technology are utilizing ideas from the field of economics since it provides the conceptual understanding of underlying constructs such as usage and resource allocation. Proper resource allocation plays a key role in improving network performance. There are two primary approaches to economic resource allocation: quantity limits, and pricing. The former has the advantage of low accounting costs. However, it requires central administration and, for network users wishing to purchase more quantity than allocated, a pricing schedule has to be developed. The pricing approach does not enforce any quantity limits. Instead, users self-select the quantity they are willing to purchase at prevailing prices. The pricing approach decentralizes the resource allocation problem but has higher accounting costs since usage needs to be monitored and billed. The role of pricing as a resource allocation mechanism will be examined here, since central administration of quotas would be difficult in a global network. Furthermore, a pricing mechanism may still be needed to meet user demands in e-commerce. While the short-term role of economic pricing is to manage the network resources more efficiently, in the long run it could play an important role in the design of new network protocols. For example, new technological developments with priority classes in the IPv6 Internet protocol [3] will present the challenge of defining an economic basis for priority allocation. The Internet traffic-pricing problem for e-commerce subsumes traditional telecommuni-cation pricing policies and is much more complex. Traditional telecommunication systems offer a single quality level for their services on a given type of network, for example, the ability to carry voice data at a desired rate on a telephone network. However, in e-commerce there is a rich collection of services that require different levels of service quality over the same data communication network. For example, during a telnet session a user requires a high-speed and low-volume data transfer for real-time interaction with a server. On the other hand, a video conference needs clarity and coordination in picture and sound, necessitating a much more complex set of service quality attributes, such as synchronization of information sent via different interoperable applications (video, audio, and text). In addition, audio and video applications require high-volume and high-speed transfers with low variability in data transfer rates. These …

Informative advertising and product match

Abstract This paper studies informative advertising in a variety of market structures for which some consumers are informed about two differentiated products while other consumers are uninformed. We characterize a unique symmetric subgame perfect Nash equilibrium in advertising and pricing, and analyze the welfare properties of the equilibrium. Remarkably, total surplus is non-monotonic in advertising. In a duopoly market, the equilibrium level of advertising may be more or less than socially optimal. We also study the effect of a trade association, and compare these results with the first-best solution and a multiproduct monopolist.

Variable-Frame Level-n Theory

Abstract We develop a boundedly rational version of variable frame theory by merging the variable-frame concept with level- n theory. Variable frame theory assumes that a players options are determined by a set of attributes (her “frame”), which induce a partition of the action set. Schelling competence emerges by combining frame-induced options with unbounded rationality and with payoff-dominance and symmetry disqualification. The weak empirical evidence for these assumptions motivates variable frame level- n theory, which predicts the Schelling competence by combining a nonrational level-0 tendency with reasoning by higher-level players. Journal of Economic Literature Classification Numbers: B41, C70.

The influence of black markets on a queue-rationed centrally planned economy

Abstract In centrally planned economies in which prices are fixed, and the rationing mechanism is waiting line queues, we show that an equilibrium of waiting times exists. We then introduce a “black market” in which individuals can trade commodities that they have acquired through the official economy. An equilibrium of black market prices and waiting times is shown to exist; further, the economy with a black market is “queue-efficient.”. However, the introduction of black markets is not necessarily a Pareto improvement over an economy without black markets (even when we allow winners to compensate losers).

Evidence based rules and learning in symmetric normal-form games

Abstract. We put forth a general theory of boundedly rational behavior and learning for symmetric normal-form games with unique symmetric Nash equilibria. A class of evidence-based behavioral rules is specified, which includes best-responding to a prior and Nash play. A player begins with initial propsenities towards the rules, and given experience over time adjusts his/her propensities in proportion to the past performance of the rules. We focus on scenarios in which the past distribution of play is revealed to all players. Confronting this theory with experimental data, we find significant support for rule learning and heterogeneity among participants.

Managing computing resources in intranets: an electronic commerce perspective

Abstract Intra-organizational networks (intranets) are increasingly being developed for information sharing and collaborative work in geographically dispersed organizations. However, organizations are increasingly realizing that having an intranet in itself may not provide expected increase in productivity and benefits. Intranet resources have to be managed appropriately and with organizational goals in mind for intranets to be a meaningful part of organizational environment. In this paper we provide a framework to manage the resources in the intranets using the concepts of electronic commerce. Specifically, we propose the creation of an electronic organizational unit, intranet Resource Management Unit (iRMU), that manages user requests using a dynamic priority pricing approach. The iRMU integrates a dynamic priority pricing approach with the concepts of topology management, security management, and software-agents based service construction to create a comprehensive resource management environment. The contribution of this paper is to provide a framework that integrates existing technological base with economic pricing approaches to create an economics-embedded intranet resource management approach.

Evidence for optimistic and pessimistic behavior in normal-form games

Abstract Experimental evidence can provide clues as to the kind of reasoning that boundedly rational agents apply to arrive at a strategy choice. We report statistical tests on the saliency of optimistic and pessimistic behaviors in symmetric normal-form games.

Modeling And Testing For Heterogeneity In Observed Strategic Behavior

Experimental data have consistently shown diversity in beliefs as well as in actions among experimental subjects. This paper presents and compares alternative behavioral econometric models for the characterization of player heterogeneity, both between and within subpopulations of players. In particular, two econometric models of diversity within sub-populations of players are investigated, one using a model of computational errors and the other allowing for diversity in prior beliefs around a modal prior for the subpopulation.