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Prediction, Optimization and Learning in Repeated Games

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  • John Nachbar

Abstract

Consider a two-player discounted repeated game in which each player optimizes with respect to prior beliefs about his opponent's repeated game strategy. One would like to argue that if beliefs are cautious then players will learn as the game unfolds to predict the continuation path of play. If this conjecture were true then a convergence result due to Kalai and Lehrer would imply that the continuation path would asymptotically resemble the path of a Nash equilibrium. One would thus have constructed a theory which predicts Nash equilibrium as the necessary long-run consequence of optimization by cautious players. This paper points out that there is an obstacle to such a result in the form of a potential conflict between prediction and optimization.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 576.

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Date of creation: 08 Dec 2010
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Handle: RePEc:cla:levarc:576

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  1. Kalai, Ehud & Stanford, William, 1988. "Finite Rationality and Interpersonal Complexity in Repeated Games," Econometrica, Econometric Society, vol. 56(2), pages 397-410, March.
  2. Binmore, Ken, 1987. "Modeling Rational Players: Part I," Economics and Philosophy, Cambridge University Press, vol. 3(02), pages 179-214, October.
  3. Lawrence Blume & David Easley, 1993. "Rational Expectations and Rational Learning," Game Theory and Information 9307003, EconWPA.
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