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Revisiting games of incomplete information with analogy-based expectations

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Author Info
Jehiel, Philippe
Koessler, Frédéric

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Abstract

This paper studies the effects of analogy-based expectations in static two-player games of incomplete information. Players are assumed to be boundedly rational in the way they forecast their opponent's state-contingent strategy: they bundle states into analogy classes and play best-responses to their opponent's average strategy in those analogy classes. We provide general properties of analogy-based expectation equilibria and apply the model to a variety of well known games. We characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information [Rubinstein, A., 1989. The electronic mail game: Strategic behavior under [`]almost common knowledge'. Amer. Econ. Rev. 79, 385-391], we show how analogy grouping of the receiver may facilitate information transmission in Crawford and Sobel's cheap talk games [Crawford, V.P., Sobel, J., 1982. Strategic information transmission. Econometrica 50, 1431-1451], and we show how analogy grouping may give rise to betting in zero-sum betting games such as those studied to illustrate the no trade theorem.

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Publisher Info
Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 62 (2008)
Issue (Month): 2 (March)
Pages: 533-557
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Handle: RePEc:eee:gamebe:v:62:y:2008:i:2:p:533-557

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Web page: http://www.elsevier.com/locate/inca/622836

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Hyun Song Shin & Andrew Postlewaite & Stephen Morris, 1995. "Depth of knowledge and the effect of higher order uncertainty," Economic Theory, Springer, vol. 6(3), pages 453-467.
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  2. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February. [Downloadable!] (restricted)
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  3. Aumann, Robert J., 1974. "Subjectivity and correlation in randomized strategies," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 67-96, March. [Downloadable!] (restricted)
  4. Rubinstein, Ariel, 1989. "The Electronic Mail Game: Strategic Behavior under "Almost Common Knowledge."," American Economic Review, American Economic Association, vol. 79(3), pages 385-91, June. [Downloadable!] (restricted)
  5. Stephen Morris & Hyun Song Shin, . "Approximate Common Knowledge and Co-ordination: Recent Lessons from Game Theory," CARESS Working Papres 97-8, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences. [Downloadable!]
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  6. Morgan, John & Stocken, Phillip C, 2003. " An Analysis of Stock Recommendations," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 183-203, Spring.
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  7. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September. [Downloadable!] (restricted)
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  8. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August. [Downloadable!] (restricted)
  9. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July. [Downloadable!] (restricted)
  10. Philippe Jeniel, 2001. "Analogy-Based Expectation Equilibrium," Economics Working Papers 0003, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  11. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August. [Downloadable!] (restricted)
  12. Marco Ottaviani & Francesco Squintani, 2002. "Non-Fully Strategic Information Transmission," Wallis Working Papers WP29, University of Rochester - Wallis Institute of Political Economy. [Downloadable!]
  13. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. David Ettinger & Philippe Jehiel, 2005. "Towards a theory of deception," PSE Working Papers 2005-28, PSE (Ecole normale supérieure). [Downloadable!]
    Other versions:
  2. Carrillo, Juan D. & Palfrey, Thomas R., 2006. "The compromise game: Two-sided adverse selection in the laboratory," Working Papers 1259, California Institute of Technology, Division of the Humanities and Social Sciences. [Downloadable!]
  3. Marco Angrisani & Antonio Guarino & Steffen Huck & Nathan Larson, 2008. "No-Trade in the Laboratory," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
    • Marco Angrisani & Antonio Guarino & Steffen Huck & Nathan Larson, 2008. "No-Trade in the Laboratory," WEF Working Papers 0045, ESRC World Economy and Finance Research Programme, Birkbeck, University of London. [Downloadable!]
  4. Juan D Carrillo & Thomas R Palfrey, 2008. "No Trade," Levine's Bibliography 122247000000001839, UCLA Department of Economics. [Downloadable!]
  5. Topi Miettinen, 2007. "Learning Foundations and Complexity of the Cursed Equilibrium," Papers on Strategic Interaction 2006-40, Max Planck Institute of Economics, Strategic Interaction Group. [Downloadable!]
  6. Steffen Huck & Philippe Jehiel & Tom Rutter, 2006. "Information Processing and Learning: Testing the Analogy-based Expectation Approach," Levine's Bibliography 321307000000000364, UCLA Department of Economics. [Downloadable!]
  7. Juan D Carrillo & Thomas R Palfrey, 2007. "The Compromise Game: Two-Sided Adverse Selection in the Laboratory," Levine's Bibliography 122247000000001463, UCLA Department of Economics. [Downloadable!]
  8. Jakub Steiner & Colin Stewart, 2006. "Contagion through Learning," ESE Discussion Papers 151, Edinburgh School of Economics, University of Edinburgh, revised 10 Aug 2007. [Downloadable!]
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  9. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2006. "Coarse Thinking and Persuasion," NBER Working Papers 12720, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. Thomas R. Palfrey, 2006. "The Compromise Game: Two-sided Adverse Selection in the Laboratory," IEPR Working Papers 06.60, Institute of Economic Policy Research (IEPR). [Downloadable!]
  11. Azrieli, Yaron, 2007. "Categorization and correlation in a random-matching game," MPRA Paper 5475, University Library of Munich, Germany. [Downloadable!]
  12. Philippe Jehiel, 2007. "Manipulative Auction Design," Levine's Bibliography 122247000000001547, UCLA Department of Economics. [Downloadable!]
  13. Juan D. Carrillo & Thomas R. Palfrey, 2007. "The Compromise Game: Two-sided Adverse Selection in the Laboratory," Levine's Bibliography 321307000000000754, UCLA Department of Economics. [Downloadable!]
  14. Steffen Huck & Philippe Jehiel & Tom Rutter, 2006. "Information Processing, Learning and Analogy-based Expectation: an Experiment," Levine's Bibliography 321307000000000541, UCLA Department of Economics. [Downloadable!]
  15. Carrillo, Juan D & Palfrey, Thomas R, 2007. "The Compromise Game: Two-sided Adverse Selection in the Laboratory," CEPR Discussion Papers 6103, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  16. Miettinen, Topi, 2008. "Analogy-based Expectations and the Partially Cursed Equilibrium," Working Paper Series in Economics and Finance 708, Stockholm School of Economics, revised 12 Dec 2008. [Downloadable!]
  17. Philippe Jehiel & Steffen Huck & Tom Rutter, 2007. "Learning Spillover and Analogy-based Expectations: a Multi-Game Experiment," Levine's Bibliography 843644000000000120, UCLA Department of Economics. [Downloadable!]
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