Nash equilibrium often does not seem to accurately predict behavior. In experimental game theory, it is usually assumed that the monetary payoffs in the game represent subjects’ utilities. However, subjects may actually play a very different game. In this case, mutual knowledge of preferences may not be satisfied. In our experiment, we first elicit subjects’ preferences over the monetary payoffs for all players. This allows us to identify equilibria in the games that subjects actually are playing (the preference games). We then examine whether revealing other subjects’ preferences leads to more equilibrium play and find that this information indeed has a significant effect. Furthermore, it turns out that subjects are more likely to play maxmin and maxmax strategies than Nash equilibrium strategies.
Brunner, C., T. F. Kauffeldt, and H. Rau (2021). Does Mutual Knowledge of Preferences Lead to More Nash Equilibrium Play? Experimental Evidence. European Economic Review 135.
This paper introduces receiver ambiguity in a binary model of Bayesian persuasion. The sender has a well-defined prior, while the receiver considers an interval of priors and maximizes a convex combination of worst and best expected payoffs (α-maxmin preferences). We characterize the sender's optimal signal and find that the receiver's payoff differences across states given action (sensitivities), play a fundamental role in the characterization and the comparative statics: If the sender's preferred action is the least (most) sensitive one, then the sender's equilibrium payoff, as well as the sender's preferred degree of receiver ambiguity, is increasing (decreasing) in the receiver's pessimism. We document a tendency for ambiguous receivers to be more difficult to persuade.
Hedlund, J., T. F. Kauffeldt, and M. Lammert (2021). Persuasion under Ambiguity. Theory and Decision 90, pp. 455-482.
Political representatives with criminal backgrounds are considered a great problem in many countries. In India, public disclosure of the large share of politicians currently facing criminal charges has sparked a heated public debate and emerging literature assessing the causes and effects. We develop two hypotheses based on our theoretical considerations. Based on the coding of published affidavits and a comprehensive set of three proxies to measure effort in the 14th Lok Sabha over the 2004-2009 legislative period, we put these hypotheses to an empirical test. Members of the parliament (MPs) facing criminal accusations exhibit on average about 5% lower attendance rates and lower utilization rates in a local area development fund, but only insignificantly lower parliamentary activity. In line with our hypotheses, these differences decline in the development level of the constituency - a proxy for higher rent-seeking possibilities and monitoring intensity. We argue and demonstrate why these negative relations should constitute an upper bound estimate of the causal effect, and show that even under conservative assumptions the effect is unlikely to be caused by unaccounted selection-bias.
Gehring, K., T. F. Kauffeldt, and K. C. Vadlamannati (2019). Crime, Incentives and Political Effort: Evidence from India. European Journal of Political Economy 59, pp. 1-20.
Product differentiation decisions are frequently made under imperfect probabilistic information about consumer tastes (demand ambiguity). We investigate a Hotelling duopoly game of product-design-then-price choices that incorporates demand ambiguity. Our model allows for different levels of demand ambiguity. We find that the impact of ambiguity on product differentiation depends on firms' ambiguity attitudes. Furthermore, our model generalizes the probabilistic model of Meagher and Zauner (J Econ Theory 117:201 - 216, 2004) and the non-probabilistic model of Krol (Int J Ind Org 30:593 - 604, 2012).
Kauffeldt, T. F. and B. Wiesenfarth (2018). Product Design Competition under Different Degrees of Demand Ambiguity. Review of Industrial Organization 53, pp. 397-420.
Kauffeldt, T. F. and H. Kazanc (2019). "Artificial Intelligence and Machine Learning in the Energy Industry" in Realization of utility 4.0 (ed. by O. Doleski). Wiesbaden: Springer, pp. 449-463.
Transformation of 2x2 Games (w. H. Rau and A. Sofianos)
Machine Learning Algorithms for Plausibility Checks: Theory and Evidence From the Energy Sector (w. B. Lutz and H. Kazanc)
A Hierarchy of Ambiguity Aversion (w. L. Hartmann)
Strategic Behavior of Non-Expected Utility Players in Games with Payoff Uncertainty
Theory and Decision • Journal of Behavioral and Experimental Economics • Journal of Economic Psychology • Group Decision and Negotiation