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Nash equilibrium when players account for the complexity of their forecasts

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  • Eliaz, Kfir

Abstract

Nash equilibrium is often interpreted as a steady state in which each player holds the correct expectations about the other players` behavior and acts rationally. This paper investigates the robustness of this interpretation when players` preferences are affected by their forecasts about the other players. In particular, I analyze the case of lexicographic preferences in which the simplicity of forecasts is secondary to material payoffs.
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  • Eliaz, Kfir, 2003. "Nash equilibrium when players account for the complexity of their forecasts," Games and Economic Behavior, Elsevier, vol. 44(2), pages 286-310, August.
    • Handle: RePEc:eee:gamebe:v:44:y:2003:i:2:p:286-310
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    Cited by:

    1. Ran Spiegler, 2016. "Bayesian Networks and Boundedly Rational Expectations," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1243-1290.
    2. Mengel, Friederike, 2012. "Learning across games," Games and Economic Behavior, Elsevier, vol. 74(2), pages 601-619.
    3. Tsakas, E., 2012. "Rational belief hierarchies," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    4. Spiegler, Ran, 2004. "Simplicity of beliefs and delay tactics in a concession game," Games and Economic Behavior, Elsevier, vol. 47(1), pages 200-220, April.
    5. Yilmaz Kocer, 2010. "Endogenous Learning with Bounded Memory," Working Papers 1290, Princeton University, Department of Economics, Econometric Research Program..
    6. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    7. Azrieli, Yaron, 2009. "Categorizing others in a large game," Games and Economic Behavior, Elsevier, vol. 67(2), pages 351-362, November.
    8. Spiegler, Ran, 2005. "Testing threats in repeated games," Journal of Economic Theory, Elsevier, vol. 121(2), pages 214-235, April.
    9. Diasakos, Theodoros M, 2013. "Complexity and Bounded Rationality in Individual Decision Problemsing," SIRE Discussion Papers 2013-93, Scottish Institute for Research in Economics (SIRE).
    10. Maenner, Eliot, 2008. "Adaptation and complexity in repeated games," Games and Economic Behavior, Elsevier, vol. 63(1), pages 166-187, May.
    11. Tsakas, Elias, 2014. "Rational belief hierarchies," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 121-127.
    12. Theodoros M. Diasakos, 2008. "Complexity and Bounded Rationality in Individual Decision Problems," Carlo Alberto Notebooks 90, Collegio Carlo Alberto.
    13. Azrieli, Yaron, 2007. "Thinking categorically about others: A conjectural equilibrium approach," MPRA Paper 3843, University Library of Munich, Germany.

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    JEL classification:

    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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