Karl-Martin Ehrhart

Coordination and local interaction: experimental evidence

Subjects repeatedly played a three-player coordination game with a payoff-dominant and a risk-dominant equilibrium. Subjects interacting in fixed groups quickly coordinated on the payoff-dominant equilibrium, while those interacting with their neighbours around a circle eventually coordinated on the risk-dominant equilibrium.

Budget processes : theory and experimental evidence

This paper studies budget processes, both theoretically and experimentally. We compare the outcomes of bottom-up and top-down budget processes. It is often presumed that a top-down budget process leads to a smaller overall budget than a bottom-up budget process. Ferejohn and Krehbiel (1987) showed theoretically that this need not be the case. We test experimentally the theoretical predictions of their work. The evidence from these experiments lends strong support to their theory, both at the aggregate and the individual subject level.

Continuous-Time Strategy Selection in Linear Population Games

In an experimental evolutionary game framework we investigate whether subjects end up in a socially efficient state. We examine two games, a game where the socially efficient state is also an equilibrium and a game which has no equilibrium in pure strategies at all. Furthermore, we distinguish between a situation in which the subjects are completely informed about the payoff function and a situation in which they are incompletely informed. We observe that subjects spend the greater part of the time at or near the efficient state. If the efficient state is an equilibrium, they spend more time there than otherwise. Furthermore, incomplete information increases the time spent at the efficient state. Copyright Kluwer Academic Publishers 1999

Design of the 3G Spectrum Auctions in the UK and Germany: An Experimental Investigation

Abstract This paper analyses the auction designs chosen for awarding 3G licences in the UK and Germany and compares them with respect to revenues and bidders’ surplus using a laboratory experiment. In our study with a given number of bidders, the German design leads to higher revenues. However, bidder surplus in the German design is lower and bidders face a severe exposure problem. Because this might discourage participation, it will probably lead to less competitive bidding in real applications.

Forward-looking behavior in Hawk–Dove games in endogenous networks: Experimental evidence

We conduct an experiment in continuous time: every subject can change her links to others and her action in a Hawk–Dove game, which she plays bilaterally with each of her linked partners, at any time. We hypothesize that norms exist regarding who establishes and thus pays for links, and that players take these norms into account when deciding on their strategy. For such limitedly forward-looking players who consider othersʼ linking reactions we introduce a strategy adaptation rule (Anticipatory Better-Reply Rule, ABR) and a related stability criterion (Reaction-Anticipatingly Stable, RAS). Our data support our assumption on linking reactions. Subjects seem to take these reactions into account when deciding to switch from Hawk to Dove (ABR-behavior). However, better-reply behavior is prevalent when short-term profits allure. RAS configurations occur more often than Nash equilibria of the base game; however, with respect to stability they perform similar.

Auction fever: Rising revenue in second-price auction formats

The prevalent term “auction fever” visualizes that ascending auctions – inconsistent with theory – are likely to provoke higher bids than one-shot auctions. To explore and isolate causes of auction fever experimentally, we design four different strategy-proof auction formats and order these according to expected rising bids based on pseudo-endowment effect arguments (psychological ownership and disparity between willingness to pay and willingness to accept). Observed revenues in the experiment in the four formats rank as expected if bidders have private uncertain values (the private information of a bidder is the distribution of her value). A control treatment supports our view that the traditional private certain values approach prevents auction fever in the laboratory. Another control treatment with a procurement auction relates the auction fever bids to bids in a one-shot auction with real endowments. We conclude that, when bidders are uncertain about their valuations, auctions that foster pseudo-endowment may raise bids and revenues.

Coordination Games: Recent Experimental Results

Recent experimental results show that equilibrium selection in coordination games exhibits remarkable regularities. In the paper we analyze three important determinants for equilibrium selection, the size of the population of players, the number of periods during which players interact, and the local interaction structure imposed on the population of players.

Game Theory and Experimental Economics

The chapter “Game Theory and Experimental Economics” shows various possibilities of applying methods of game theory and experimental methods to the field of economic consulting. The selected topics have been chosen because they provide a useful object of analysis within this context and at the same time, because they are among our central research interests. This work does not cover the aforementioned topic in the fullest detail. For example, cooperative game theory and its applications are not discussed. As regards non-cooperative game theory, not all aspects and fields can be mentioned here.

Generous Allocation and a Ban on Banking : Implications of a Simulation Game for EU Emissions Trading

Admitting banking in emissions trading systems reduces overall compliance costs by allowing for intertemporal flexibility: cost savings can be traded over time. However most, EU Member States prohibit the transfer of unused allowances from the period of 2005–2007 into the first commitment period under the Kyoto Protocol, i.e. 2008–2012. At the same time, allowances appear to be allocated fairly generously to the emissions trading sector. In this paper, we first explore the implications of such a ban on banking when initial emission targets are lenient. This analysis is based on a simulation which was recently carried out in Germany with companies and with a student control group. The findings suggest that an EU-wide ban on banking would lead to efficiency losses in addition to those losses which arise from the lack of intertemporal flexibility.

Information and Efficiency in Coordination Games: Recent Experimental Results

Previous experimental results of repeated coordination games show that subjects often end up in “poor” equilibria. Strategic uncertainty about the opponents’ moves induces players to select poor, but secure, equilibria. In our paper, we investigate how public information on previous moves of opponents may be used to reduce strategic uncertainty and, therefore, favor coordination on superior equilibria.