On taxed matrix games and changes in the expected transfer (Q457868): Difference between revisions

Summary: In gambling scenarios the introduction of taxes may affect playing behavior and the transferred monetary volume. Using a game theoretic approach, we ask the following: How does the transferred monetary volume change when the winner has to pay a tax proportional to her win? In this paper we therefore introduce a new parameter: the expected transfer. For a zerosum matrix game with payoff matrix \(A\) and mixed strategies \(p\) and \(q\) of the two players it is defined by \(\mathrm{ET}(A;p,q) = \sum \sum p_i q_j | a_{ij}|\). Surprisingly, it turns out that for small fair matrix games higher tax rates lead to an increased expected transfer. This phenomenon occurs also in analogous situations with tax on the loser, bonus for the winner, or bonus for the loser. Higher tax or bonus rates lead to overproportional expected revenues for the tax authority or overproportional expected expenses for the grant authority, respectively.