Browsing by Author "Dudey, Marc P"

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    Cooperation under Imperfect Monitoring and External Threat
    (2016-10-05) Zhou, Hao; Dudey, Marc P
    Cooperation among players is often a good deed to pursue. The famous "Prisoner’s Dilemma" in game theory has long been an example of showing how non-cooperation results because of conflict of interest among agents. My thesis investigates how factors like imperfect public monitoring, emergence of an external threat influences the cooperative behaviors among players in dynamic environments. Chapter 1 investigates bidder collusion in repeated procurement auctions without communication or side payments, focusing on the case of bidders having identical costs under imperfect public monitoring where only winners, not bids, are publicly observed. It presents a simple bid rotation scheme, in which bidders take turns entering bids equal to the auction’s reserve price. This behavior is supported by the threat of a bidding war, i.e. if an auction is won by the wrong bidder, all bidders will enter bids equal to their common production cost in all future auctions. Bid rotation maximizes the bidders’ joint profits and is a perfect public equilibrium if and only if the discount factor is greater than or equal to a critical value, call it delta. This paper presents two main results. First, except for a measure zero set of discount factors, joint profit maximization cannot be achieved for discount factors below delta by any profile of bidding strategies. Second, in the case of two bidders, there is no profile of bidding strategies that achieves joint profit maximization for discount factors less than or equal to delta. Chapter 2 investigates a situation where firms selling different products refer mis- allocated customers to one another. Under monitoring over each other’s sales in every period, we analyze firm referrals in an infinitely repeated game with by looking at a class of “k + 1 punishment schemes”, in which players “forgive” the first k bad signals, and “punish” each other forever after the k + 1’s bad signal. We characterize the unique optimal k in this class of schemes. Chapter 3 is an empirical paper that models the impacts of telemarketing calls for selling bank long-term deposits. We use a dataset from a Portuguese retail bank from 2008 to 2013. This dataset contains features related to the calls and customers. We model a binary response of the outcome of the telemarketing call (yes or no) using those features. In second part of the paper, we propose methods to model price elasticity of demand (PED), which measures sensitivity of the long-term deposits resulting from changing interest rates. In estimating the PEDs, propensity-score-matching is used to adjust for potential group differentiation. Chapter 4 studies alliance behavior under external threat. When an alliance faces danger of appropriation from an external enemy, it is optimum for its members to jointly invest in their defense. For members to behave collusively in the subgame perfect Nash equilibrium (SPNE), each of them has to be allocated with some minimum share of that resource. Under proportion-to-share rule of cost contribution and profit earning, this paper looks at how that minimum share requirement changes after the emergence of the external threat. We find that two factors, alliance size and cost factor contribute to the stability of the alliance in opposite directions. Further, force from more costly investment outweighs the force from increasing alliance size, which makes the alliance easier to maintain.
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    Essays on Game Theory and Financial-Strategy Test
    (2015-05-22) Zhu, Minyan; Dudey, Marc P; Brown, Bryan W; Fang, Songying
    Game theory studies strategic decision making among multiple rational players. Since 1950 Nash’s famous paper, it has wide applications to many fields: political science, financial market, cooperate finance, industrial organization and etc. Researchers are not only interested in the applications of game theory but also focus on the mechanism design that considers the structure of game forms. In this dissertation, I explore both areas: the first two chapters consider the games played by multiple players in industrial organization and the third chapter considers the mechanism design problem for the assignment problem. Continued government support of public good programs (e.g. assistance to less developed countries, or to university researchers for work on a multistage project, or to communities for environmental improvement programs) often depends on grant recipients making adequate progress toward their goals. Chapter 1 studies a prisoner’s dilemma with positive payoffs that will repeat a given known number of times or until there is evidence of cheating, whichever comes first. Our discussion focuses precisely on how much cooperation is possible (i.e., for how many periods cooperation lasts). When the termination rule is based on perfect information about the players’ behavior and players are motivated to cooperate for at least one period, early termination of the game never occurs, i.e. cooperation continues until the last possible period. Cooperation may end sooner when the termination rule is based on imperfect information about the players’ behavior. For the case of imperfect information, I show how much cooperation can occur as a function of the model parameters and under the assumption that players are able to engage in mutual monitoring. Chapter 2 investigates the motivation of mutual recommendations. It seems irrational for people to refer customers to the other stores without having any profit. But such examples are around us, for example, a mechanical shop may refer customers to another one when it cannot fix the issues. In this chapter, I consider a two-player infinitely repeated game. Players, in each period, can either choose recommendation or not-recommendation that depends on the history of a public signal. A new mechanism, k + 1 punishment scheme, is proposed in which two players stop recommending when k consecutive bag signals occur. Among all possible k + 1 punishment schemes, there exists a unique optimal k* to maximize the player’s payoff. Thus, mutual recommendations between players can increase their overall profits even if such action incurs cost. Chapter 3 investigates a typical class of assignment problems, which relaxes the assumption of the completeness of bipartite graphs but enforces balance conditions. When the domain is 2-connectivity (each agent has at most 2 available tasks), I find there exist mechanisms satisfying ordinal-efficiency, equal treatment of equals, and strategy-proof. This result does not restrict the number of players in the game. Since a strong negative result exists in the standard assignment problem, I propose a new mechanism, hybrid mechanism, to find a more relaxed domain to simultaneously satisfy all previous three conditions. The last chapter of my dissertation explores the portfolio management. It compares the results of the decay model with various DCC-GARCH models in risk parity strategy. 16 commodity futures data ranging from 1990.1.1 to 2013.12.31 are implemented to construct portfolio weights. The performance measures are risk attribution, Sharpe Ratio, total return, loss functions and rolling volatilities. I find the decay model and DCC-GARCH model have the similar performances under risk-parity strategy, even if they have different assumptions about the covariance matrix.