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Modeling the Economic Interaction of Agents With Diverse Abilities to Recognize Equilibrium Patterns

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  • Michele Piccione

    (London School of Economics,)

  • Ariel Rubinstein

    (Tel Aviv University and Princeton University,)

Abstract

We model differences among agents in their ability to recognize temporal patterns of prices. Using the concept of DeBruijn sequences in two dynamic models of markets, we demonstrate the existence of equilibria in which prices fluctuate in a pattern that is independent of the fundamentals and that can be recognized only by the more competent agents. (JEL: C7, D4, S477) Copyright (c) 2003 The European Economic Association.

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Bibliographic Info

Article provided by MIT Press in its journal Journal of the European Economic Association.

Volume (Year): 1 (2003)
Issue (Month): 1 (03)
Pages: 212-223

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Handle: RePEc:tpr:jeurec:v:1:y:2003:i:1:p:212-223

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References

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  1. Lehrer, Ehud, 1988. "Repeated games with stationary bounded recall strategies," Journal of Economic Theory, Elsevier, vol. 46(1), pages 130-144, October.
  2. Sabourian, Hamid, 1998. "Repeated games with M-period bounded memory (pure strategies)," Journal of Mathematical Economics, Elsevier, vol. 30(1), pages 1-35, August.
  3. Gilboa Itzhak & Schmeidler David, 1994. "Infinite Histories and Steady Orbits in Repeated Games," Games and Economic Behavior, Elsevier, vol. 6(3), pages 370-399, May.
  4. Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers 35-91, Tel Aviv.
  5. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-24, July.
  6. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  7. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
  8. GOSSNER, Olivier & HERNANDEZ, Pénélope, 2001. "On the complexity of coordination," CORE Discussion Papers 2001047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  9. Lehrer Ehud, 1994. "Finitely Many Players with Bounded Recall in Infinitely Repeated Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 390-405, November.
  10. Ben-Porath Elchanan, 1993. "Repeated Games with Finite Automata," Journal of Economic Theory, Elsevier, vol. 59(1), pages 17-32, February.
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Citations

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Cited by:
  1. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
  2. Renault, Jérôme & Scarsini, Marco & Tomala, Tristan, 2008. "Playing off-line games with bounded rationality," Mathematical Social Sciences, Elsevier, vol. 56(2), pages 207-223, September.
  3. Piccione, Michele & Spiegler, Ran, 2009. "Price Competition under Limited Comparability," MPRA Paper 21427, University Library of Munich, Germany, revised 16 Oct 2009.
  4. B. Luppi, 2006. "Price Competition over Boundedly Rational Agents," Working Papers 565, Dipartimento Scienze Economiche, Universita' di Bologna.
  5. Eliaz, Kfir & Spiegler, Ran, 2006. "Consideration Sets and Competitive Marketing," MPRA Paper 21434, University Library of Munich, Germany, revised 03 Sep 2009.
  6. Oktay Sürücü, 2013. "Welfare Improving Discrimination based on Cognitive Limitations," Working Papers 495, Bielefeld University, Center for Mathematical Economics.
  7. Philippe Jehiel & David Ettinger, 2005. "Towards a theory of deception," PSE Working Papers halshs-00590767, HAL.
  8. Eliaz, Kfir & Spiegler, Ran, 2004. "Contracting with Diversely Naive Agents," CEPR Discussion Papers 4573, C.E.P.R. Discussion Papers.
  9. Ran Spiegler, 2014. "Bayesian Networks and Boundedly Rational Expectations," Discussion Papers 1417, Centre for Macroeconomics (CFM).
  10. Rani Spiegler, 2005. "The Market for Quacks," Levine's Bibliography 784828000000000634, UCLA Department of Economics.
  11. Yuval Salant, 2003. "Limited Computational Resources Favor Rationality," Discussion Paper Series dp320, The Center for the Study of Rationality, Hebrew University, Jerusalem.

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