Toshiji Kawagoe

Equilibrium refinement vs. level-k analysis: An experimental study of cheap-talk games with private information

We present the experimental results of cheap-talk games with private information. We systematically compare various equilibrium refinement theories and bounded rationality models such as level-k analysis in explaining our experimental data. As in the previous literature, we find that when interests between sender and receiver are aligned, informative communication frequently arises. While babbling equilibrium play is observed more frequently in conflicting interest cases, a substantial number of players tend to choose truth-telling and credulous play. We also find that level-k analysis outperforms equilibrium refinement theories in explaining this phenomenon. Our results also confirm the existence of the “truth bias” and “truth-detection bias” reported in communication theory.

Level-K Analysis of Experimental Centipede Games

As one of the best-known examples of the paradox of backward induction, centipede games have prompted a host of studies with various approaches and explanations (McKelvey and Palfrey, 1992; Fey et al., 1996; Nagel and Tang, 1998; Rapoport et al., 2003; Palacios-Huerta and Volij, 2009). Focusing on initial plays observed in experiments, this paper attempts to offer another explanation based on thorough study of level-k models as applied to these games. Borrowing ideas from the cognitive hierarchy model (Camerer et al., 2004), the authors constructed a group of models based on levels of rationality, and also tested for various assumptions on the play of the most naive player type in these models. It was found that level-k models generally perform better than the agent quantal response equilibrium (AQRE) model and its variant with altruistic player types for increasing-pie centipede games, while the AQRE model with altruistic player types performs better in constant-pie games.

Cross-National Gender Differences in Behavior in a Threshold Public Goods Game: Japan versus Canada

To investigate the effects of gender and national culture on economic behavior, we compare all-male and all-female groups from Japan and Canada in the context of a threshold public goods game with a strong free-riding equilibrium and many socially efficient threshold equilibria. Females and Canadians exhibit higher levels of conformity when compared with males and Japanese, respectively. However, such symmetric group behavior translates into significantly tighter equilibrium convergence only for Canadian females. Canadians, particularly Canadian females, are more successful at providing the public good than Japanese. The results suggest that the prevalence of different notions of self-construal may affect behavior.

Learning to use a perishable good as money

In this paper, a variant of Kiyotaki and Wrights model of emergence of money is investigated. In the model, each good has different durability rather than storage cost as in Kiyotaki and Wrights model. Two goods are infinitely durable but one is not durable. With certain conditions, non-durable good can be money as a medium of exchange. But equilibrium condition may be sensitive to the time evolution of the distribution of goods that each agent holds in its inventory.We test, with several learning models using different level of information, whether or not the steady state in this economy can be attainable if the distribution of goods is far from the steady state distribution. Belief learning with full information outperforms the other models. The steady state equilibrium is never attained by belief learning with partial information. A few agents learn to use non-durable good as money by reinforcement learning which does not use information about distribution of goods. It is surprising that providing partial information is rather detrimental for attaining emergence of a non-durable good money.

The bullwhip effect: a counterexample

In our previous experiments of a supply chain using Beer Game, we found a counterexample for the bullwhip effect such that inventory level of the upstream firm is not always larger than that of the downstream firm even in the environment that the number of firms is many and the length of delay in shipping is longer. In this paper, we propose several quantitative definitions of the bullwhip effect and re-estimate our previous findings with these definitions. To the best of our knowledge, no systematic attempt has been made to define quantitatively the bullwhip effect while it is defined qualitatively so far. This study is the first attempt to define the bullwhip effect quantitatively. We show that a frequency based statistical measurement such as stochastic dominance is not appropriate to capture the bullwhip effect quantitatively because it cannot distinguish between a case of the bullwhip effect and a counterexample. On the other hand, descriptive statistics such as mean and standard deviation works well.

The Skipping-down strategy and stability in school choice problems with affirmative action: Theory and experiment

Abstract This paper presents a theoretical and experimental study of affirmative action policies in school choice problems focusing on the minority reserve mechanism, or DA-Reserve, proposed by Hafalir et al. (2013) and the majority quota mechanism, or DA-Quota, proposed by Abdulkadiroglu and Sonmez (2003) , Kojima (2012) and Matsubae (2011) . An evaluation of the performance of these mechanisms showed that, (1) while truth-telling is a dominant strategy in both mechanisms, the rate of its occurrence was less than 60%; (2) the average payoff was significantly higher with DA-Reserve than with DA-Quota, as theoretically predicted; (3) surprisingly, the proportion of students exhibiting justified envy was higher with DA-Reserve than with DA-Quota; and (4) a systematic pattern of deviation from the dominant strategy (referred to as skipping-down) was observed, and it was theoretically proven that this constituted Nash equilibrium with DA-Quota in some environments but not with DA-Reserve. More generally, the set of stable matchings was found to be larger with DA-Quota than with DA-Reserve, which explains the matching instability observed with the latter.

Bubble and Crash in the Artificial Financial Market

In this paper, we investigate bubble and crash in the artificial financial market. Based on Ball and Holt (1998)’s experiment in the laboratory with real human beings, we create a simple artificial financial market using an agent-based simulation. In this simulation, we model each agent with different characteristics with respect to expectation formation and time discounting. We found that the case of prospect theory plus exponential time discounting is most resemble with the price dynamics found in Ball and Holt’s experiment and real world price bubble and crash. We also examine whether Ball and Holt’s and our experiment are really judged as a bubble and crush with some indexes so far proposed. Then, Ball and Holt’ experimental result is judged not as a price bubble but as a divergent oscillation, while our result is judged as a bubble.

A Counterexample for the Bullwhip Effect in a Supply Chain

In our experiment of a supply chain using Beer Game, to identify the cause of bullwhip effect, the number of firms in a supply chain (two or four firms), and the length of the delay in shipping between firms (one or three weeks) are controlled and compared in the multiagent simulations. We found a counterexample for bullwhip effect such that inventory level of upstream firm was not always larger than that of downstream firm. In addition, contrary to our intuition, such a counterexample was frequently observed under the condition that (1) the number of firms in a supply chain was many, and that (2) the length of delay was rather longer.

Economics, Game Theory and Disability Studies

This chapter analyses inclusive communities by applying economics, mainly microeconomics and game theory, to disability studies. First, we provide a brief overview of the basics of economics and the key concepts in game theory, including strategic complementarity and network externality, which not only make a departure from the standard price theory but also respond to some of the misguided criticisms against economics, particularly market fundamentalism and the supremacy of the rational agent in economic analysis. Economics affirms the modern view of a human being as an autonomous, rational decision maker. However, some, if not all economists, recognize that in the real world, there is no human being who has such cognitive/computational capacity; rather, human beings are actually influenced by their surrounding socio-cultural environments, and develop some boundedly rational behavior or blindly follow established conventions to resolve the many problems they face.

Quantal response equilibria in a generalized Volunteer’s Dilemma and step-level public goods games with binary decision

The present paper characterizes equilibria of a generalized Volunteer’s Dilemma game, which is an integration of the Volunteer’s Dilemma and the step-level public goods games with binary decision. We also examined the explanatory power of widely accepted models with bounded rationality, the quantal response equilibrium (QRE) and level-k analysis. It is shown that the performance of the QRE model is better in explaining laboratory data.