Real options and game theoretical approaches to real estate development projects: multiple equilibria and the implications of different tie-breaking rules

This paper contributes to a fast growing literature which introduces game theory in the analysis of real option investments in a competitive setting. Specifically, in this paper we focus on the issue of multiple equilibria and on the implications that different equilibrium selections may have for the pricing of real options and for subsequent strategic decisions. We present some theoretical results of the necessary conditions to have multiple equilibria and we show under which conditions different tie-breaking rules result in different economic decisions. We then present a numerical exercise using the in formation set obtained on a real estate development in South London. We find that risk aversion reduces option value and this reduction decreases marginally as negative externalities decrease.

The impact of price promotions on producer strategies in markets with large product heterogeneity

Although current research indicates that increasing the number of options has negative effects on the cognitive ability of consumers, little understanding has been given to the consequences on producers and their strategic behavior. This article tests whether a large portfolio of products is beneficial to producers by observing UK consumer response to price promotions. The article shows that discounts induce mainly segment switching (74% of the total impact), with a limited effect on stockpiling (26%) and no impact on purchase incidence. Consequently, consumers prefer to “follow the discount” rather than purchase multiple units of the same wine. This result seems to explain the current structure of the market, and suggests that discounts may conflict with segment loyalty, a situation that disfavors producers, particularly in very populated segments. Results also casts doubts on the economic sustainability of competition based on an intense product differentiation in the wine sector.

Formal theory building for the avalanche game: explaining counter-intuitive behaviour of a complex system using geometrical and human behavioural/physiological effects

In 'Avalanche', an object is lowered, players staying in contact throughout. Normally the task is easily accomplished. However, with larger groups counter-intuitive behaviours appear. The paper proposes a formal theory for the underlying causal mechanisms. The aim is to not only provide an explicit, testable hypothesis for the source of the observed modes of behaviour-but also to exemplify the contribution that formal theory building can make to understanding complex social phenomena. Mapping reveals the importance of geometry to the Avalanche game; each player has a pair of balancing loops, one involved in lowering the object, the other ensuring contact. For more players, sets of balancing loops interact and these can allow dominance by reinforcing loops, causing the system to chase upwards towards an ever-increasing goal. However, a series of other effects concerning human physiology and behaviour (HPB) is posited as playing a role. The hypothesis is therefore rigorously tested using simulation. For simplicity a 'One Degree of Freedom' case is examined, allowing all of the effects to be included whilst rendering the analysis more transparent. Formulation and experimentation with the model gives insight into the behaviours. Multi-dimensional rate/level analysis indicates that there is only a narrow region in which the system is able to move downwards. Model runs reproduce the single 'desired' mode of behaviour and all three of the observed 'problematic' ones. Sensitivity analysis gives further insight into the system's modes and their causes. Behaviour is seen to arise only when the geometric effects apply (number of players greater than degrees of freedom of object) in combination with a range of HPB effects. An analogy exists between the co-operative behaviour required here and various examples: conflicting strategic objectives in organizations; Prisoners' Dilemma and integrated bargaining situations. Additionally, the game may be relatable in more direct algebraic terms to situations involving companies in which the resulting behaviours are mediated by market regulations. Finally, comment is offered on the inadequacy of some forms of theory building and the case is made for formal theory building involving the use of models, analysis and plausible explanations to create deep understanding of social phenomena.

Good machine performance in Turing’s imitation game

In this paper we consider transcripts which originated from a practical series of Turing’s Imitation Game which was held on 23rd June 2012 at Bletchley Park, England. In some cases the tests involved a 3-participant simultaneous comparison of two hidden entities whereas others were the result of a direct 2-participant interaction. Each of the transcripts considered here resulted in a human interrogator being fooled, by a machine, into concluding that they had been conversing with a human. Particular features of the conversation are highlighted, successful ploys on the part of each machine discussed and likely reasons for the interrogator being fooled are considered. Subsequent feedback from the interrogators involved is also included

Game-theoretic aspects of international mergers: Theory and case studies

This paper studies the exclusion of potential competition as a motivating factor for international mergers. We propose a simple game-theoretic framework in order to discuss the conditions under which mergers that prevent reciprocal domestic competition will occur. Our analysis highlights the shortcomings of antitrust policies based on pre-merger/post-merger concentration comparisons. A review of several recent European cases suggests that actual merger policy often fails to consider potential competition.

An experiment on subjective game valuations

We report experimental results on a prisoners' dilemma implemented in a way which allows us to elicit incentive−compatible valuations of the game. We test the hypothesis that players' valuations coincide with their Nash equilibrium earnings. Our results offer significantly less support for this hypothesis than for the prediction of Dominant Strategy (DS) play.

The Kasparov-World Game

Kasparov-World, initiated by Microsoft and also sponsored by First USA, was a novel correspondence game played on the World Wide Web at one ply per day. This was the first time that any group had attempted to form on the Web and then solve shared problems against fixed, short-term deadlines. The first author first became involved in his role as a Web consultant, observing the dynamics and effectiveness of the group. These are fully described, together with observations on the technological contribution and the second author's post-hoc computation of some relevant Endgame Tables.

Impact of game bird release on the Adonis blue butterfly Polyommatus bellargus (Lepidoptera Lycaenidae) on chalk grassland

Polyommatus bellargus is a priority species of butterfly in the UK as a result of its scarcity and the rate of population decline over the last few years. In the UK, the species is associated with chalk grassland on hot, south-facing slopes suitable for the growth of the food plant Hippocrepis comosa. Shooting game birds is a popular pastime in the UK. Over 40 million game birds, principally Phasianus colchicus and Alectoris rufa, are bred and released into the countryside each year for shooting interests. There is a concern that the release of such a large number of non-native birds has an adverse effect on native wildlife. A study was carried out over a period of 3 years out to examine whether there was any evidence that A. rufa released into chalk grassland habitat negatively affects populations of P. bellargus. A comparison was made between sites where large numbers of A. rufa were released versus sites where no, or few, birds were released. The study involved the construction of exclosures in these sites to allow an examination of the number of butterflies emerging from H. comosa when the birds were excluded versus when the birds had free range across the area. Where birds were present the on-site vegetation was shorter than where they were absent indicating that the birds were definitely influencing habitat structure. However, the evidence that A. rufa was negatively influencing the number of adult butterflies emerging was not strong, although there was a largely non-significant tendency for higher butterfly emergence when the birds were excluded or absent.