Name of the Game - II

Continuing from where I had left earlier, I will hereby present two more investment games that would work towards providing the participants an astute overview of the real life. The third in line of the game series is romantically titled the “Moonlighting Game”. In this investment game, Player1 can only transfer positive amounts of money to Player2. Here, both players begin with a positive endowment. Player1 can give an amount g or take away an amount t from the 2nd player. The amount increases by a multiple R, an amount taken away is simply transferred to Player1. Player2 can then return or take money away from the 1st player. An amount b given back costs b to Player2 while the punishment in the form of an amount P taken away costs 3P. Since Player1 is a Moonlighter, his activity cannot be legally enforced. The game allows the study of positive and negative reciprocity.

The last one to be discussed here is named the “Peasant-Dictator Game”. Here, Player1 is a peasant and Player2, a dictator. The peasant decides the amount of investment K he makes out of an available amount W. The investment produces an income worth (1+r)K. Then, the 2nd player (dictator) moves, he can impose a tax t on the income produced and the amount t(1+r)K goes to him and (1-t)(1+r)K returns to the peasant and is added to W-K.

Here, two treatments are possible. First, the dictator can commit to a level of taxes before the peasant decides or doesn’t commit. A slightly different but economically equivalent formation is the one where the dictator announces the level of taxes before the investment. In one treatment, he’s committed to the announcement made; in the other he is not. When the announcement has no binding force and the rational choice for the dictator for any level of investment is to tax the entire amount produced. In the 2nd case, the dictator knows that a tax level, too high, would induce the peasant to make no investment.

While phrased differently, this game with no commitment is equivalent to the trust game. The amount invested by the peasant in the P-D game is equivalent to the transfer made by 1 in the “Money-Exchange Game” and the amount left after taxation corresponds to the amount returned by 2 in the investment game. The specific parameters are matched by a rate of return R=2 in the P-D game and W equals the initial endowment of the 1st mover. A possible important difference in the description of the game is the nature of the amount decided by the 1st mover. In the instructions reported for the P-D game, the amount is described as an investment, while in the “Money-Exchange Game” it’s described as a transfer from the 1st to the 2nd mover.

After all, it depends on the navigator which direction he steers the ship towards...