Equilibrium Play in Large Group Market Entry Games

Rapoport, Anatol; Seale, Darryl A.; Erev, Ido; Sundali, James A.

doi:10.1287/mnsc.44.1.119

Cited by 100 publications

(46 citation statements)

References 20 publications

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“…However, in all four cases we find that there are significant differences between observed and efficient traffic flows (signrank test p-value < 0.01 in all cases). Similar to the prior literature on traffic (Morgan et al 2009, Anderson et al 2008) and market entry games (Sundali et al 1995, Rapoport et al 1998 we find that the average number of road users is much closer to the Nash equilibrium number than to the efficient number. Because individuals fail to internalize the social cost their decisions impose on others, their expected travel costs are higher than at the social optimum.…”

Section: Equilibrium Comparisonsupporting

confidence: 87%

Traffic congestion: an experimental study of the Downs-Thomson paradox

2013

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This study considers a model of road congestion with average cost pricing. Subjects must choose between two routes -Road and Metro. Travel cost on the road is increasing in the number of commuters who choose this route, while travel cost on the metro is decreasing in the number of its users. We examine how changes to road capacity, number of commuters, and metro pricing scheme influence the commuters' route-choice behavior. According to the Downs-Thomson paradox, improved road capacity increases travel times along both routes because it attracts more users to the road and away from the metro, thereby worsening both services. A change in route design generates two Nash equilibria; and the resulting coordination problem is amplified even further when the number of commuters is large. We find that, similar to other binary choice experiments with congestion effects, aggregate traffic flows are close to the equilibrium levels, but systematic individual differences persist over time.

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Section: Equilibrium Comparisonsupporting

confidence: 87%

Traffic congestion: an experimental study of the Downs-Thomson paradox

2013

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“…Roadway congestion is a source of extreme inefficiency; the estimated cost in the United States for 2005 was $78 billion (83). Experimental studies reveal quick convergence to inefficient Nash equilibrium in this setting (84). One solution is the use of congestion pricing that builds on our understanding of human adaptation (85).…”

Section: Potential Implicationsmentioning

confidence: 99%

Maximization, learning, and economic behavior

Erev

Roth

2014

Proc. Natl. Acad. Sci. U.S.A.

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143

102

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The rationality assumption that underlies mainstream economic theory has proved to be a useful approximation, despite the fact that systematic violations to its predictions can be found. That is, the assumption of rational behavior is useful in understanding the ways in which many successful economic institutions function, although it is also true that actual human behavior falls systematically short of perfect rationality. We consider a possible explanation of this apparent inconsistency, suggesting that mechanisms that rest on the rationality assumption are likely to be successful when they create an environment in which the behavior they try to facilitate leads to the best payoff for all agents on average, and most of the time. Review of basic learning research suggests that, under these conditions, people quickly learn to maximize expected return. This review also shows that there are many situations in which experience does not increase maximization. In many cases, experience leads people to underweight rare events. In addition, the current paper suggests that it is convenient to distinguish between two behavioral approaches to improve economic analyses. The first, and more conventional approach among behavioral economists and psychologists interested in judgment and decision making, highlights violations of the rational model and proposes descriptive models that capture these violations. The second approach studies human learning to clarify the conditions under which people quickly learn to maximize expected return. The current review highlights one set of conditions of this type and shows how the understanding of these conditions can facilitate market design.decisions from experience | mechanism design | contingencies of reinforcements | experience-description gap | reinforcement learning E conomics has long used idealized models of perfectly rational individual behavior as useful approximations for explaining market institutions and other economic phenomena. Many of the successful economic inventions (e.g., trading, commodity markets, auctions, matching market institutions) seem to work in ways that are well accounted for by rational models. For example, trading is most likely to be successful when all sides benefit from the trade. Careful empirical studies show, however, important violations of the rationality assumption (e.g., refs. 1-3). Thus, it seems that the usefulness of the leading economic analyses may be enhanced by relaxing the rationality assumption and improving the descriptive value of the underlying models, in part by identifying where the perfect-rationality approximations work more or less well and the purposes for which they may be more or less useful.Much of what has come to be called behavioral economics can be described as an attempt to make economic analyses more accurate by modifying the rational model to incorporate psychological insights. The most basic rational model, the expected value rule, models people as assigning cash equivalents to possible outcomes, and then selecting th...

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“…Similar situations have been analyzed by the empirical economic literature on market entry games (see e.g., Selten and Güth (1982); Ochs (1990Ochs ( , 1995; Rapoport et al (2002); Erev and Rapoport (1998)). In these models players must decide independently whether to enter a market (and incur an entry cost).…”

Section: Introductionmentioning

confidence: 69%

Discounted and finitely repeated minority games with public signals

Renault¹,

Scarlatti²,

Scarsini³

2008

Mathematical Social Sciences

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We consider a repeated game where at each stage players simultaneously choose one of two rooms. The players who choose the less crowded room are rewarded with one euro. The players in the same room do not recognize each other, and between the stages only the current majority room is publicly announced, hence the game has imperfect public monitoring. An undiscounted version of this game was considered by Renault et al. (2005), who proved a folk theorem. Here we consider a discounted version and a finitely repeated version of the game, and we strengthen our previous result by showing that the set of equilibrium payoffs Hausdorff-converges to the feasible set as either the discount factor goes to one or the number of repetition goes to infinity. We show that the set of public equilibria for this game is strictly smaller than the set of private equilibria.

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Equilibrium Play in Large Group Market Entry Games

Cited by 100 publications

References 20 publications

Traffic congestion: an experimental study of the Downs-Thomson paradox

Traffic congestion: an experimental study of the Downs-Thomson paradox

Maximization, learning, and economic behavior

Discounted and finitely repeated minority games with public signals

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