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Valuation equilibrium

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Author Info

  • Jehiel, Philippe

    ()
    (PSE and UCL)

  • Samet, Dov

    ()
    (Tel Aviv University)

Abstract

We introduce a new solution concept for games in extensive form with perfect information, valuation equilibrium, which is based on a partition of each player's moves into similarity classes. A valuation of a player is a real-valued function on the set of her similarity classes. In this equilibrium each player's strategy is optimal in the sense that at each of her nodes, a player chooses a move that belongs to a class with maximum valuation. The valuation of each player is consistent with the strategy profile in the sense that the valuation of a similarity class is the player's expected payoff, given that the path (induced by the strategy profile) intersects the similarity class. The solution concept is applied to decision problems and multi-player extensive form games. It is contrasted with existing solution concepts. The valuation approach is next applied to stopping games, in which non-terminal moves form a single similarity class, and we note that the behaviors obtained echo some biases observed experimentally. Finally, we tentatively suggest a way of endogenizing the similarity partitions in which moves are categorized according to how well they perform relative to the expected equilibrium value, interpreted as the aspiration level.

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Bibliographic Info

Article provided by Econometric Society in its journal Theoretical Economics.

Volume (Year): 2 (2007)
Issue (Month): 2 (June)
Pages:

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Handle: RePEc:the:publsh:187

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Web page: http://econtheory.org

Related research

Keywords: Game theory; bounded rationality; valuation; similarity; aspiration;

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References

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  1. Philippe Jehiel & Dov Samet, 2001. "Learning To Play Games In Extensive Form By Valuation," NajEcon Working Paper Reviews 391749000000000010, www.najecon.org.
  2. Ariel Rubinstein, 2010. "Perfect Equilibrium in a Bargaining Model," Levine's Working Paper Archive 252, David K. Levine.
  3. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May.
  4. Rosenthal, Robert W., 1981. "Games of perfect information, predatory pricing and the chain-store paradox," Journal of Economic Theory, Elsevier, vol. 25(1), pages 92-100, August.
  5. Piccione, Michele & Rubinstein, Ariel, 1997. "On the Interpretation of Decision Problems with Imperfect Recall," Games and Economic Behavior, Elsevier, vol. 20(1), pages 3-24, July.
  6. Philippe Jehiel, 2005. "Analogy-Based Expectation Equilibrium," Levine's Bibliography 784828000000000106, UCLA Department of Economics.
  7. Jakub Steiner & Colin Stewart, 2007. "Learning by Similarity in Coordination Problems," CERGE-EI Working Papers wp324, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  8. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July.
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Citations

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Cited by:
  1. Seel, Christian & Wichardt, Philipp C., 2012. "How burning money requires a lot of rationality to be effective," Economics Letters, Elsevier, vol. 115(1), pages 111-113.
  2. Philippe Jehiel & Dov Samet, 2010. "Learning To Play Games In Extensive Form By Valuation," Levine's Working Paper Archive 391749000000000034, David K. Levine.
  3. Steiner, Jakub & Stewart, Colin, 2014. "Price Distortions in High-Frequency Markets," CEPR Discussion Papers 9817, C.E.P.R. Discussion Papers.
  4. Vessela Daskalova & Nicolaas J. Vriend, 2014. "Categorization and Coordination," Working Papers 719, Queen Mary, University of London, School of Economics and Finance.
  5. Mohlin, Erik, 2014. "Optimal categorization," Journal of Economic Theory, Elsevier, vol. 152(C), pages 356-381.
  6. Wichardt, Philipp C., 2012. "Existence of valuation equilibria when equilibrium strategies cannot differentiate between equal ties," Games and Economic Behavior, Elsevier, vol. 74(2), pages 709-713.

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