Deception in Networks: A Laboratory Study

Date: 2014-04
By: Rong Rong (Department of Economics, Weber State University)
Daniel Houser (Interdisciplinary Center for Economic Science and Department of Economics, George Mason University)
URL: http://d.repec.org/n?u=RePEc:gms:wpaper:1046&r=net
Communication between departments within a firm may include deception. Theory suggests that telling lies in these environments may be strategically optimal if there exists a small difference in monetary incentives (Crawford and Sobel, 1982; Galeotti et al, 2012). We design a laboratory experiment to investigate whether agents with different monetary incentives in a network environment behave according to theoretical predictions. We found that players’ choices are consistent with the theory. That is, most communication within an incentive group is truthful and deception often occurs between subjects from different groups. These results have important implications for intra-organizational conflict management, demonstrating that in order to minimize deceptive communication between departments the firm may need to reduce incentive differences between these groups. Length: 19
Keywords: social networks, deception, strategic information transmission, experiments
JEL: D85 D02 C92
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Experimental games on networks: Underpinnings of behavior and equilibrium selection

Date: 2014-04
By: Gary Charness
Francesco Feri
Miguel A. Meléndez-Jiménez
Matthias Sutter
URL: http://d.repec.org/n?u=RePEc:inn:wpaper:2014-14&r=net
In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion’s share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information.
Keywords: Random networks, Incomplete information, Connectivity, Clustering, Strategic substitutes, Strategic complements, Experiment
JEL: C71 C91 D03 D85

Informative Advertisement of Partial Compatible Products

Date: 2014-03-26
By: Roig, Guillem
URL: http://d.repec.org/n?u=RePEc:tse:wpaper:28044&r=net
Product design and advertisement strategy have been theoretically studied as separate firms decisions. In the present paper, we look at the link between advertisement and product design and we analyze how firms’ advertising decisions influence the market effect of product design. We consider a model of informative advertisement where two firms produce a bundle of complementary products which are partially compatible. A product design with more compatible components is associated with a larger intensity of advertisement. Higher compatibility reduces competition between firms, which incentivizes them to give factual information about their bundle. Like Matutes and Regibeau (1988), industry profit and total welfare is maximized with full product compatibility. However, contrary to them, we obtain that consumer surplus is not monotone with the level of product compatibility and its maximum is attained with partial compatibility. Moreover, because consumer surplus not only depends on the equilibrium prices but also on the intensity of advertisement, we find that for intermediate equilibrium levels of advertising, consumers prefer fully compatible components rather than full incompatibility. As a result, a more compatible product design benefits all the agents in the economy.
Keywords: Informative advertisement; product design; partial compatibility; welfare.
JEL: D21 D43 L13 L15

Experimental Games on Networks: Underpinnings of Behavior and Equilibrium Selection

Date: 2014-04
By: Charness, Gary (University of California, Santa Barbara)
Feri, Francesco (University of Innsbruck)
Meléndez-Jiménez, Miguel A. (University of Malaga)
Sutter, Matthias (European University Institute)
URL: http://d.repec.org/n?u=RePEc:iza:izadps:dp8104&r=net
In this paper, we describe a series of laboratory experiments that implement specific examples of a more general network structure and we examine equilibrium selection. Specifically, actions are either strategic substitutes or strategic complements, and participants have either complete or incomplete information about the structure of a random network. Since economic environments typically have a considerable degree of complementarity or substitutability, this framework applies to a wide variety of settings. The degree of equilibrium play is striking, in particular with incomplete information. Behavior closely resembles the theoretical equilibrium whenever this is unique; when there are multiple equilibria, general features of networks, such as connectivity, clustering, and the degree of the players, help to predict informed behavior in the lab. People appear to be strongly attracted to maximizing aggregate payoffs (social efficiency), but there are forces that moderate this attraction: 1) people seem content with (in the aggregate) capturing only the lion’s share of the efficient profits in exchange for reduced exposure to loss, and 2) uncertainty about the network structure makes it considerably more difficult to coordinate on a demanding, but efficient, equilibrium that is typically implemented with complete information.
Keywords: random networks, incomplete information, connectivity, clustering, strategic substitutes, strategic complements, experiment
JEL: C71 C91 D03 D85