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Analogy-Based Expectation Equilibrium

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Author Info
Philippe Jeniel () (Paris-Jourdan Sciences Économiques (PSE), École Normale Supérieur)

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Abstract

It is assumed that players bundle nodes in which other players must move into analogy classes, and players only have expectations about the average behavior in every class. A solution concept is proposed for multi-stage games with perfect information: at every node players choose best-responses to their analogy-based expectations, and expectations are correct on average over those various nodes pooled together into the same analogy classes. The approach is applied to a variety of games. It is shown that a player may benefit from having a coarse analogy partitioning. And for simple analogy partitioning, (1) initial cooperation followed by an end opportunistic behavior may emerge in the finitely repeated prisoner's dilemma (or in the centipede game), (2) an agreement need not be reached immediately in bargaining games with complete information.

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Publisher Info
Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0003.

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Length: 38 pages
Date of creation: Mar 2001
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Publication status: Published in Journal of Economic Theory 123 (2005) 81-104
Handle: RePEc:ads:wpaper:0003

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Related research
Keywords: Game theory; bounded rationality; reasoning by analogy;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

References listed on IDEAS
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  1. Ran Spiegler, 2003. "Simplicity of Beliefs and Delay Tactics in a Concession Game," Levine's Bibliography 506439000000000208, UCLA Department of Economics. [Downloadable!]
  2. Fudenberg, Drew & Levine, David, 1998. "Learning in games," European Economic Review, Elsevier, vol. 42(3-5), pages 631-639, May. [Downloadable!] (restricted)
  3. Van Damme, Eric & Selten, Reinhard & Winter, Eyal, 1990. "Alternating bid bargaining with a smallest money unit," Games and Economic Behavior, Elsevier, vol. 2(2), pages 188-201, June. [Downloadable!] (restricted)
    Other versions:
  4. Meyer, Margaret A, 1991. "Learning from Coarse Information: Biased Contests and Career Profiles," Review of Economic Studies, Blackwell Publishing, vol. 58(1), pages 15-41, January. [Downloadable!] (restricted)
  5. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-36, July. [Downloadable!] (restricted)
  6. Dulleck, Uwe & Oechssler, Jorg, 1997. "The absent-minded centipede," Economics Letters, Elsevier, vol. 55(3), pages 309-315, September. [Downloadable!] (restricted)
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  7. 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. [Downloadable!] (restricted)
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  8. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August. [Downloadable!] (restricted)
  9. Rubinstein, Ariel, 1982. "Perfect Equilibrium in a Bargaining Model," Econometrica, Econometric Society, vol. 50(1), pages 97-109, January. [Downloadable!] (restricted)
  10. Tesfatsion, Leigh S., 2004. "Games, Goals, and Bounded Rationality," Staff General Research Papers 11209, Iowa State University, Department of Economics.
  11. Osborne, Martin J & Rubinstein, Ariel, 1998. "Games with Procedurally Rational Players," American Economic Review, American Economic Association, vol. 88(4), pages 834-47, September. [Downloadable!] (restricted)
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  12. Spiegler, Ran, 2004. "Simplicity of beliefs and delay tactics in a concession game," Games and Economic Behavior, Elsevier, vol. 47(1), pages 200-220, April. [Downloadable!] (restricted)
  13. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-24, July. [Downloadable!] (restricted)
  14. Reny Philip J., 1993. "Common Belief and the Theory of Games with Perfect Information," Journal of Economic Theory, Elsevier, vol. 59(2), pages 257-274, April. [Downloadable!] (restricted)
  15. Eliaz, Kfir, 2003. "Nash equilibrium when players account for the complexity of their forecasts," Games and Economic Behavior, Elsevier, vol. 44(2), pages 286-310, August. [Downloadable!] (restricted)
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  16. Jeheil Phillippe, 1995. "Limited Horizon Forecast in Repeated Alternate Games," Journal of Economic Theory, Elsevier, vol. 67(2), pages 497-519, December. [Downloadable!] (restricted)
  17. Jehiel, Philippe, 1998. "Learning to Play Limited Forecast Equilibria," Games and Economic Behavior, Elsevier, vol. 22(2), pages 274-298, February. [Downloadable!] (restricted)
  18. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-81, November. [Downloadable!] (restricted)
  19. 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. [Downloadable!] (restricted)
  20. Philippe Jeniel, 2001. "Analogy-Based Expectation Equilibrium," Economics Working Papers 0003, Institute for Advanced Study, School of Social Science. [Downloadable!]
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  21. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229. [Downloadable!] (restricted)
  22. Gilboa, Itzhak & Schmeidler, David, 1995. "Case-Based Decision Theory," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 605-39, August. [Downloadable!] (restricted)
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  23. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June. [Downloadable!] (restricted)
  24. Dow, James, 1991. "Search Decisions with Limited Memory," Review of Economic Studies, Blackwell Publishing, vol. 58(1), pages 1-14, January. [Downloadable!] (restricted)
  25. Rubinstein, Ariel, 1993. "On Price Recognition and Computational Complexity in a Monopolistic Model," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 473-84, June. [Downloadable!] (restricted)
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  26. Jehiel, Philippe, 2001. "Limited Foresight May Force Cooperation," Review of Economic Studies, Blackwell Publishing, vol. 68(2), pages 369-91, April.
  27. Kreps, David M & Wilson, Robert, 1982. "Sequential Equilibria," Econometrica, Econometric Society, vol. 50(4), pages 863-94, July. [Downloadable!] (restricted)
    Other versions:
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