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Modeling the Economic Interaction of Agents with Diverse Abilities to Recognize 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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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 506439000000000108.

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Date of creation: 09 Dec 2010
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Handle: RePEc:cla:levarc:506439000000000108

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  1. Rubenstein, A., 1991. "On Price Recognition and Computational Complexity in a Monopolistic Model," Papers 35-91, Tel Aviv.
  2. 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.
  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. Sabourian, Hamid, 1998. "Repeated games with M-period bounded memory (pure strategies)," Journal of Mathematical Economics, Elsevier, vol. 30(1), pages 1-35, August.
  5. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-24, July.
  6. Lehrer, Ehud, 1988. "Repeated games with stationary bounded recall strategies," Journal of Economic Theory, Elsevier, vol. 46(1), pages 130-144, October.
  7. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
  8. O. Gossner & P. Hernandez, 2001. "On the complexity of coordination," THEMA Working Papers 2001-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
  9. Ben-Porath Elchanan, 1993. "Repeated Games with Finite Automata," Journal of Economic Theory, Elsevier, vol. 59(1), pages 17-32, February.
  10. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
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Citations

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Cited by:
  1. Michele Piccione & Ran Spiegler, 2010. "Price Competition under Limited Comparability," Levine's Working Paper Archive 661465000000001143, David K. Levine.
  2. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
  3. Jehiel, Philippe & Ettinger, David, 2007. "Towards a Theory of Deception," Economics Papers from University Paris Dauphine 123456789/11188, Paris Dauphine University.
  4. Eliaz, Kfir & Spiegler, Ran, 2009. "Consideration Sets and Competitive Marketing," CEPR Discussion Papers 7456, C.E.P.R. Discussion Papers.
  5. Ran Spiegler, 2014. "Bayesian Networks and Boundedly Rational Expectations," Discussion Papers 1417, Centre for Macroeconomics (CFM).
  6. Scarsini, Marco & Renault, Jérôme & Tomala, Tristan, 2008. "Playing off-line games with bounded rationality," Economics Papers from University Paris Dauphine 123456789/6127, Paris Dauphine University.
  7. Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 689-714.
  8. Oktay Sürücü, 2013. "Welfare Improving Discrimination based on Cognitive Limitations," Working Papers 495, Bielefeld University, Center for Mathematical Economics.
  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.
  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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