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The Cycles Approach

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  • Jose Alvaro Rodrigues-Neto

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Abstract

The cycles approach uses graph theory and linear algebra to study models of knowledge, characterized by a state space, a set of players and their partitions. In finite state spaces, there is a simple formula for the cyclomatic number; i.e., the dimension of cycle spaces of a model. We prove that the cyclomatic number is the minimum number of cycle equations that must be checked to guarantee the existence of a common prior, and explain why some cycle equations are automatically satisfied. If the cyclomatic number is zero, a common prior always exists, regardless of the probabilistic information given by players.posteriors. There is an isomorphism taking cycles into cycle equations; adding cycles is the counterpart of multiplying the corresponding cycle equations. With these tools, we study the processes of learning and forgetting, as well as properties of sub models (i.e., restricting attention to a proper subset of players), and decompositions of the set of players in subsets. We analyze how individual learning translates into more common knowledge or cycle destruction.

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Bibliographic Info

Paper provided by Australian National University, College of Business and Economics, School of Economics in its series ANU Working Papers in Economics and Econometrics with number 2011-547.

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Length: 28 Pages
Date of creation: Jul 2011
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Handle: RePEc:acb:cbeeco:2011-547

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  1. Rodrigues-Neto, José Alvaro, 2009. "From posteriors to priors via cycles," Journal of Economic Theory, Elsevier, vol. 144(2), pages 876-883, March.
  2. Ng, Man-Chung, 2003. "On the duality between prior beliefs and trading demands," Journal of Economic Theory, Elsevier, vol. 109(1), pages 39-51, March.
  3. Jose Alvaro Rodrigues-Neto, 2011. "The Cycles Approach," ANU Working Papers in Economics and Econometrics 2011-547, Australian National University, College of Business and Economics, School of Economics.
  4. Hellman, Ziv & Samet, Dov, 2012. "How common are common priors?," Games and Economic Behavior, Elsevier, vol. 74(2), pages 517-525.
  5. Samet, Dov, 1998. "Common Priors and Separation of Convex Sets," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 172-174, July.
  6. Feinberg, Yossi, 2000. "Characterizing Common Priors in the Form of Posteriors," Journal of Economic Theory, Elsevier, vol. 91(2), pages 127-179, April.
  7. José Alvaro Rodrigues-Neto, 2012. "Cycles of length two in monotonic models," ANU Working Papers in Economics and Econometrics 2012-587, Australian National University, College of Business and Economics, School of Economics.
  8. Martin Hellwig, 2011. "From Posteriors to Priors via Cycles: An Addendum," Working Paper Series of the Max Planck Institute for Research on Collective Goods 2011_07, Max Planck Institute for Research on Collective Goods.
  9. Steiner, Jakub & Stewart, Colin, 2011. "Communication, timing, and common learning," Journal of Economic Theory, Elsevier, vol. 146(1), pages 230-247, January.
  10. Barton L. Lipman, 1997. "Finite Order Implications of Common Priors," Game Theory and Information 9703005, EconWPA.
  11. John Geanakoplos, 1992. "Common Knowledge," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 53-82, Fall.
  12. Daron Acemoglu & Victor Chernozhukov & Muhamet Yildiz, 2007. "Learning and Disagreement in an Uncertain World," Carlo Alberto Notebooks 48, Collegio Carlo Alberto.
  13. Geanakoplos, John D. & Polemarchakis, Heraklis M., 1982. "We can't disagree forever," Journal of Economic Theory, Elsevier, vol. 28(1), pages 192-200, October.
  14. John Geanakoplos & Heracles M. Polemarchakis, 1982. "We Can't Disagree Forever," Cowles Foundation Discussion Papers 639, Cowles Foundation for Research in Economics, Yale University.
  15. Alfredo Di Tillio, 2002. "Iterated Expectations with Common Beliefs," Game Theory and Information 0209004, EconWPA.
  16. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Morris, Stephen, 1994. "Trade with Heterogeneous Prior Beliefs and Asymmetric Information," Econometrica, Econometric Society, vol. 62(6), pages 1327-47, November.
  18. Samet, Dov, 1998. "Iterated Expectations and Common Priors," Games and Economic Behavior, Elsevier, vol. 24(1-2), pages 131-141, July.
  19. Barelli, Paulo, 2009. "Consistency of beliefs and epistemic conditions for Nash and correlated equilibria," Games and Economic Behavior, Elsevier, vol. 67(2), pages 363-375, November.
  20. John C. Harsanyi, 1967. "Games with Incomplete Information Played by "Bayesian" Players, I-III Part I. The Basic Model," Management Science, INFORMS, vol. 14(3), pages 159-182, November.
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Cited by:
  1. José Alvaro Rodrigues-Neto, 2012. "Monotonic models and cycles," ANU Working Papers in Economics and Econometrics 2012-586, Australian National University, College of Business and Economics, School of Economics.
  2. Hellwig, Martin F., 2013. "From posteriors to priors via cycles: An addendum," Economics Letters, Elsevier, vol. 118(3), pages 455-458.
  3. Rodrigues-Neto, José Alvaro, 2012. "The cycles approach," Journal of Mathematical Economics, Elsevier, vol. 48(4), pages 207-211.
  4. José Alvaro Rodrigues-Neto, 2012. "Cycles of length two in monotonic models," ANU Working Papers in Economics and Econometrics 2012-587, Australian National University, College of Business and Economics, School of Economics.

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