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Towards a Theory of Deception

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  • David Ettinger
  • Philippe Jehiel

Abstract

This paper proposes an equilibrium approach to deception where deception is defined to be the process by which actions are chosen to induce erroneous inferences so as to take advantage of them. Specifically, we introduce a framework with boundedly rational players in which agents make inferences based on a coarse information about others' behaviors: Agents are assumed to know only the average reaction function of other agents over groups of situations. Equilibrium requires that the coarse information available to agents is correct, and that inferences and optimizations are made based on the simplest theories compatible with the available information. We illustrate the phenomenon of deception and how reputation concerns may arise even in zero-sum games in which there is no value to commitment. We further illustrate how the possibility of deception affects standard economic insights through a number of stylized applications including a monitoring game and two simple bargaining games. The approach can be viewed as formalizing into a game theoretic setting a well documented bias in social psychology, the Fundamental Attribution Error.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000247.

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Date of creation: 29 Jun 2004
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Handle: RePEc:cla:levrem:122247000000000247

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References

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  1. P. Reny, 2010. "Common Belief and the Theory of Games with Perfect Information," Levine's Working Paper Archive 386, David K. Levine.
  2. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, Econometric Society, vol. 1(2), pages 207-231, June.
  3. Michele Piccione & Ariel Rubinstein, 2010. "Modeling the Economic Interaction of Agents with Diverse Abilities to Recognize Equilibrium Patterns," Levine's Working Paper Archive 506439000000000108, David K. Levine.
  4. Ignacio Esponda, 2008. "Behavioral Equilibrium in Economies with Adverse Selection," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1269-91, September.
  5. Philippe Jehiel & Frédéric Koessler, 2006. "Revisiting Games of Incomplete Information with Analogy-Based Expectations," Levine's Bibliography 122247000000000252, UCLA Department of Economics.
  6. Rubinstein, Ariel, 1995. "On the Interpretation of Decision Problems with Imperfect Recall," Mathematical Social Sciences, Elsevier, Elsevier, vol. 30(3), pages 324-324, December.
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  19. Vincent P. Crawford, 2003. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," American Economic Review, American Economic Association, American Economic Association, vol. 93(1), pages 133-149, March.
  20. Sobel, Joel, 1985. "A Theory of Credibility," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(4), pages 557-73, October.
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  22. Jeheil Phillippe, 1995. "Limited Horizon Forecast in Repeated Alternate Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 67(2), pages 497-519, December.
  23. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  24. Sendhil Mullainathan & Joshua Schwartzstein & Andrei Shleifer, 2008. "Coarse Thinking and Persuasion," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 123(2), pages 577-619, 05.
  25. Binmore, Ken & Shaked, Avner & Sutton, John, 1989. "An Outside Option Experiment," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 753-70, November.
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Citations

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Cited by:
  1. Jihong Lee, 2007. "Unforeseen Contingency and Renegotiation with Asymmetric Information," Birkbeck Working Papers in Economics and Finance, Birkbeck, Department of Economics, Mathematics & Statistics 0717, Birkbeck, Department of Economics, Mathematics & Statistics.
  2. Philippe Jehiel, 2007. "Manipulative Auction Design," Levine's Bibliography 122247000000001547, UCLA Department of Economics.
  3. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, Elsevier, vol. 134(1), pages 93-116, May.

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