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Payoff Information and Self-Confirming Equilibrium

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  • Dekel, Eddie
  • Fudenberg, Drew
  • Levine, David K.

Abstract

In a self-confirming equilibrium, each player correctly forecasts the actions that opponents will take along the equilibrium path, but may be mistaken about the way that opponents would respond to deviations. This models a steady state of a learning process in which players observe actions played by their opponents, rather than a complete specification of their strategies. Consequently, players need not receive evidence that their forecasts of off-path play are incorrect. In practice, players understand that opponents are rational and have some information about their opponents payoffs. This paper develops a refinement of self-confirming equilibrium that incorporates the effects of such information. We show that this concept is robust. We also discuss its relationship to other concepts. In particular, we show that it is closely connected to assuming almost common certainty of payoffs in an epistemic model with independent beliefs.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 89 (1999)
Issue (Month): 2 (December)
Pages: 165-185

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Handle: RePEc:eee:jetheo:v:89:y:1999:i:2:p:165-185

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Web page: http://www.elsevier.com/locate/inca/622869

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  3. David Kreps & Robert Wilson, 1998. "Sequential Equilibria," Levine's Working Paper Archive 237, David K. Levine.
  4. Gul, Faruk, 1996. "Rationality and Coherent Theories of Strategic Behavior," Journal of Economic Theory, Elsevier, Elsevier, vol. 70(1), pages 1-31, July.
  5. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  6. Fudenberg, Drew & Levine, David K, 1993. "Self-Confirming Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 61(3), pages 523-45, May.
  7. Drew Fudenberg & David K. Levine, 1993. "Steady State Learning and Nash Equilibrium," Levine's Working Paper Archive 373, David K. Levine.
  8. D. Fudenberg & D. M. Kreps, 2010. "Learning in Extensive Games, I: Self-Confirming Equilibrium," Levine's Working Paper Archive 382, David K. Levine.
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  13. Reny Philip J., 1993. "Common Belief and the Theory of Games with Perfect Information," Journal of Economic Theory, Elsevier, Elsevier, vol. 59(2), pages 257-274, April.
  14. Broseta, Bruno & Costa-Gomes, Miguel & Crawford, Vincent P., 2000. "Cognition and Behavior in Normal-Form Games: An Experimental Study," University of California at San Diego, Economics Working Paper Series, Department of Economics, UC San Diego qt0fp8278k, Department of Economics, UC San Diego.
  15. Drew Fudenberg & David M. Kreps & David K. Levine, 1986. "On the Robustness of Equilibrium Refinements," UCLA Economics Working Papers, UCLA Department of Economics 398, UCLA Department of Economics.
  16. T. Börgers, 2010. "Weak Dominance and Approximate Common Knowledge," Levine's Working Paper Archive 378, David K. Levine.
  17. Ben-Porath, Elchanan, 1997. "Rationality, Nash Equilibrium and Backwards Induction in Perfect-Information Games," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 64(1), pages 23-46, January.
  18. Philip J. Reny, 1992. "Rationality in Extensive-Form Games," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 103-118, Fall.
  19. Blume, Lawrence E & Zame, William R, 1994. "The Algebraic Geometry of Perfect and Sequential Equilibrium," Econometrica, Econometric Society, Econometric Society, vol. 62(4), pages 783-94, July.
  20. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  21. Werlang, Sérgio Ribeiro da Costa & Chin-Chiu Tan, Tommy, 1987. "The Bayesian Foundations of Solution Concepts of Games," Economics Working Papers (Ensaios Economicos da EPGE) 111, FGV/EPGE Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
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