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A Behavioral Model for Participation Games with Negative Feedback

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  • Jan Tuinstra
  • Pietro Dindo

Abstract

We study participation games with negative feedback, i.e. games where players choose either to participate in a certain project or not and where the payoff for participating decreases in the number of participating players. We use the replicator dynamics to model the competition between different behavioral rules that specify how to play the game in a repeated setting. This results in an analytically tractable model which is able to describe the type of behavior found in the experimental and computational literature. We find that an increase in the number of players destabilizes the unique symmetric mixed strategy Nash equilibrium. The time series of perpetually fluctuating participation rates typically exhibits linear autocorrelation structure and underparticipation. We investigate whether this time series structure can be exploited, and we relate underparticipation to the payoff structure of the participation game.

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Bibliographic Info

Paper provided by Warwick Business School, Finance Group in its series Working Papers with number wp06-15.

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Date of creation: 2006
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Handle: RePEc:wbs:wpaper:wp06-15

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  1. Droste, E. & Hommes, C.H. & Tuinstra, J., 1999. "Endogenous Fluctuations under Evolutionary Pressure in Cournot Competition," CeNDEF Working Papers 99-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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  14. Heemeijer, P. & Hommes, C.H. & Sonnemans, J. & Tuinstra, J., 2006. "Price Stability and Volatility in Markets with Positive and Negative Expectations Feedback: An Experimental Investigation," CeNDEF Working Papers 06-05, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
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Cited by:
  1. Hommes, C.H., 2007. "Bounded Rationality and Learning in Complex Markets," CeNDEF Working Papers 07-01, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.

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