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Modelling the Economic Interaction of Agents with Diverse Abilities to Recognise Equilibrium Patterns

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  • Michele Piccione
  • Ariel Rubinstein

Abstract

We model differences among agents in their ability to recognise temporal patterns of prices. Using the concept of DeBruijin 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 recognised only by the more competent agents.

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File URL: http://sticerd.lse.ac.uk/dps/te/te440.pdf
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Bibliographic Info

Paper provided by Suntory and Toyota International Centres for Economics and Related Disciplines, LSE in its series STICERD - Theoretical Economics Paper Series with number 440.

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Date of creation: Oct 2002
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Handle: RePEc:cep:stitep:440

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Web page: http://sticerd.lse.ac.uk/_new/publications/default.asp

Related research

Keywords: DeBruijin; price fluctuations; sunspots; bounded rationality; bounded recall.;

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References

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  1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  2. Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers 35-91, Tel Aviv.
  3. 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.
  4. 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).
  5. Lehrer, Ehud, 1988. "Repeated games with stationary bounded recall strategies," Journal of Economic Theory, Elsevier, vol. 46(1), pages 130-144, October.
  6. Sabourian, Hamid, 1998. "Repeated games with M-period bounded memory (pure strategies)," Journal of Mathematical Economics, Elsevier, vol. 30(1), pages 1-35, August.
  7. Itzhak Gilboa & David Schmeidler, 1989. "Infinite Histories and Steady Orbits in Repeated Games," Discussion Papers 846, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-24, July.
  9. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
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Citations

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Cited by:
  1. Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 689-714.
  2. Oktay Sürücü, 2013. "Welfare Improving Discrimination based on Cognitive Limitations," Working Papers 495, Bielefeld University, Center for Mathematical Economics.
  3. David Ettinger & Philippe Jehiel, 2006. "Towards a Theory of Deception," Levine's Bibliography 122247000000000775, UCLA Department of Economics.
  4. 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.
  5. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
  6. Piccione, Michele & Spiegler, Ran, 2009. "Price Competition under Limited Comparability," MPRA Paper 21427, University Library of Munich, Germany, revised 16 Oct 2009.
  7. Kfir Eliaz & Ran Spiegler, 2011. "Consideration Sets and Competitive Marketing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 235-262.
  8. Yuval Salant, 2003. "Limited Computational Resources Favor Rationality," Discussion Paper Series dp320, The Center for the Study of Rationality, Hebrew University, Jerusalem.
  9. Ran Spiegler, 2005. "Competition over Agents with Boundedly Rational Expectations," Levine's Bibliography 122247000000000535, UCLA Department of Economics.
  10. B. Luppi, 2006. "Price Competition over Boundedly Rational Agents," Working Papers 565, Dipartimento Scienze Economiche, Universita' di Bologna.

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