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The Chain Store Paradox

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Author Info

  • Reinhard Selten

    (Institute of Mathematical Economics, Bielefeld University)

Abstract

It is the purpose of this paper to present the example of a simple game in extensive form where the actual behavior of well informed players cannot be expected to agree with the clear results of game theoretical reasoning. A story about a fictitious chain store and its potential competitors is a convenient way to describe the game. This expositionary device should not be misunderstood as a model of a real situation. In view of the story the game will be called "the chain store game". The disturbing disagreement between plausible game behavior and game theoretical reasoning constitutes the "chain store paradox". The chain store paradox throws new light on the well known difficulties which arise in connection with the finite supergame of prisoners' dilemma game. A limited rationality approach seems to be needed in order to explain human strategic behavior. An attempt shall be made to discuss the possibility of a "tree-level theory of decision making" as an explanation of discrepancies between game theoretic analysis and human behavior.

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File URL: http://www.imw.uni-bielefeld.de/papers/files/imw-wp-18.pdf
File Function: First version, 1974
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Bibliographic Info

Paper provided by Bielefeld University, Center for Mathematical Economics in its series Working Papers with number 018.

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Date of creation: Jul 1974
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Handle: RePEc:bie:wpaper:018

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References

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  1. Hart, Sergiu & Kohlberg, Elon, 1974. "Equally distributed correspondences," Journal of Mathematical Economics, Elsevier, vol. 1(2), pages 167-174, August.
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Cited by:
  1. John Haltiwanger, 1987. "Responders Versus Nonresponders: A New Perspective on Heterogeneity," UCLA Economics Working Papers 436, UCLA Department of Economics.
  2. Philippe Jehiel & David Ettinger, 2007. "Towards a Theory of Deception," Levine's Bibliography 843644000000000126, UCLA Department of Economics.
  3. John Haltiwanger & Michael Waldman, 1983. "Rational Expectations and the Limits of Rationality: An Analysis of Heterogeneity," UCLA Economics Working Papers 303, UCLA Department of Economics.
  4. D. Fudenberg & David K. Levine, 1989. "Reputation and Equilibrium Selection in Games with a Patient Player," Levine's Working Paper Archive 508, David K. Levine.
  5. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  6. K. Schmidt, 1999. "Reputation and Equilibrium Characterization in Repeated Games of Conflicting Interests," Levine's Working Paper Archive 626, David K. Levine.
  7. Lee, C. B. & Murphy, W. D. & Fletcher, L. R. & Binner, J. M., 1998. "Dynamic entry deterrence in the UK pathology services market," European Journal of Operational Research, Elsevier, vol. 105(2), pages 296-307, March.

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