Browsing by Author "Keskin, Kerim"

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Open Access
Between anchors and aspirations: a new family of bargaining solutions
(Springer, 2019-04) Karagözoğlu, Emin; Keskin, Kerim; Özcan Tok, Elif
We study the salience and power of reference points in determining the effective anchors and aspirations in bargaining problems. Along this line, we enrich the analysis of the standard bargaining model with two new parameters: the first parameter can be interpreted as the effectiveness (or salience) of the reference point in determining the anchor, whereas the second parameter can be interpreted as its effectiveness in shaping agents’ aspirations. Utilizing these parameters, we provide a unifying framework for the study of bargaining problems with a reference point. The two-parameter family of bargaining solutions we obtain encompasses some well-known solutions as special cases. We offer multiple characterizations for each individual member of this family as well as two characterizations for the whole solution family in bilateral bargaining problems.
Embargo
Consideration sets and reference points in a dynamic bargaining game
(Elsevier Ltd, 2024-03) Karagözoğlu, Emin; Keskin, Kerim
We introduce the notion of limited consideration into a bilateral, infinite-horizon, alternating-offers bargaining game. Both agents have reference-dependent preferences, and their reference points are dynamically updated. An agent's current consideration set (or focus) is influenced by the last offer he rejected such that the most salient point in that consideration set becomes his current reference point. We provide an implicit characterization of stationary subgame perfect Nash equilibria in our model. Without resorting to asymmetric or incomplete information, we show that our bargaining game can produce delay and disagreement in equilibrium. In addition to analytical results on the disagreement conditions and the nature of agreements, we provide computational comparative statics on model parameters and study their impacts on delay.
Open Access
Effort comparisons for a class of four-player tournaments
(Springer Nature, 2022-06-26) Deren, Çağlayan; Karagözoğlu, Emin; Çağrı, Sağlam; Keskin, Kerim
We propose a novel tournament design that incorporates some properties of a round-robin tournament, a Swiss tournament, and a race. The new design includes an all-play-all structure with endogenous scheduling and a winning threshold. Considering a standard round-robin tournament as a baseline model, we first characterize the equilibrium strategies in round-robin tournaments with exogenous and endogenous schedules. Afterward, following an equilibrium analysis of the new tournament design, we compare thirty-six tournament structures inherent in our model with round-robin tournaments on the basis of expected equilibrium effort per battle. We show that a round-robin tournament with an endogenous schedule outperforms all the other tournament structures considered here. We further note that if expected total equilibrium effort is used as a comparison criterion instead, then the new tournament design has a potential to improve upon round-robin tournaments.
Open Access
First price auctions under prospect theory with linear probability weighting
(2011) Keskin, Kerim
Overbidding in first-price sealed-bid auctions is a well-known result in the auction theory literature. For the possible reasons behind this phenomenon, economists provided many explanations; such as risk aversion, regret theory, and subjective probability weighting. However, for subjective probability weighting to explain overbidding, the probability weighting function (PWF) is needed to be underweighting all probabilities. Such a function is not in accord with PWFs in the prospect theory literature as it suggests a specific function which satisfies certain properties. In this paper we investigate, to what extent prospect theory is able to explain overbidding by using a linear PWF satisfying all of the axiomatic properties (Currim and Sarin, 1989). Moreover, we introduce a non-zero reference point, fully utilizing prospect theory. Our results show that, subjective probability weighting alone is unable to explain overbidding. However, with the non-zero reference point assumption, we obtain partial overbidding.
Open Access
Non-cooperative game theory under prospect theory
(2016-05) Keskin, Kerim
This dissertation consists of three essays in which I study prospect theory preferences in non-cooperative game-theoretic frameworks. In decision-making experiments, it is commonly observed that actual choice behavior might violate the axioms of expected utility theory (EUT). Kahneman and Tversky (1979) argue that such experimental findings invalidate EUT as a descriptive model and propose prospect theory as an alternative representation of preferences. Later, Tversky and Kahneman (1992) propose cumulative prospect theory (CPT). Both of these theories stipulate that individual preferences can be represented by a pair of functions: probability weighting function and value function. These functions capture three key aspects of the theory: subjective probability weighting, reference dependence, and loss aversion. In the first essay of this dissertation, I study mixed strategy equilibrium for finite normal form games in which agents' preferences are represented by the pair of functions suggested in CPT. I introduce the notion of CPT equilibrium, prove the existence of CPT equilibrium for finite normal form games, and analyze the set of CPT equilibria for some normal form games. In the second essay, I study correlated equilibrium for finite normal form games in which agents' preferences are represented by the same pair of functions. I relate the notion of correlated CPT equilibrium to the notion of CPT equilibrium and investigate the differences between the sets of correlated equilibria under EUT and CPT preferences. Finally, in the third essay, I study a first-price sealed-bid auction. I concentrate on subjective probability weighting and analyze overbidding behavior which is commonly observed in first-price auction experiments. I show that inverse S-shaped probability weighting functions cannot completely explain overbidding and that such functions can provide a partial explanation for bidders with high valuations. Keywords: Correlated Equilibrium, First-price Sealed-bid Auctions, Mixed Strategy Equilibrium, Nash Equilibrium, Prospect Theory.
Open Access
Submodularity and supermodularity in contest games
(Wiley-Blackwell Publishing Ltd., 2024-01-04) Karagözoğlu, Emin; Keskin, Kerim; Sağlam, Çağrı
This paper presents various examples of two-player submodular or supermodular contest games. Emphasizing the three main elements of a contest model, our examples revolve around situations where (i) contest success function allows for a draw, (ii) winning prize is not exogenously given but rather jointly produced, or (iii) individual effort cost also depends on the rival's effort. We then illustrate how submodularity and supermodularity can be used to study the existence of equilibrium, the order structure of the equilibrium set, and monotone comparative statics in such contest game examples.
Open Access
Titans that clash and a state that buffers
(SAGE, 2022) Doğan, Serhat; Karagözoğlu, Emin; Keskin, Kerim; Sağlam, Hüseyin Çağrı
We present a game-theoretic approach to the analysis of the emergence or survival of buffer states. We analyze a two-stage game with three players orderly located on a linear territory, where the player in the middle is passive, and the players on the two ends are aggressive with options to declare war against the others. We conduct an equilibrium analysis and characterize the conditions under which the passive player acts as a buffer state between the aggressive players. We find various equilibrium outcomes, which can be grouped into the following categories: (i) peace with buffer, (ii) peace without buffer, and (iii) the last man standing. Our comparative static analyses reveal valuable insights regarding the factors affecting the existence of buffer states.