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Revisiting Games of Incomplete Information with Analogy-Based Expectations

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  • Philippe Jehiel
  • Frédéric Koessler

Abstract

This paper studies the effects of analogy-based expectations in static two-player games of incomplete information. Players are assumed to be boundedly rational in the way they forecast their opponent's state-contingent strategy: they bundle states into analogy classes and play best-responses to their opponent's average strategy in those analogy classes. We provide general properties of analogy-based expectation equilibria and apply the model to a variety of well known games. We characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information [Rubinstein, A., 1989. The electronic mail game: Strategic behavior under 'almost common knowledge'. Amer. Econ. Rev. 79, 385-391], we show how analogy grouping of the receiver may facilitate information transmission in Crawford and Sobel's cheap talk games [Crawford, V.P., Sobel, J., 1982. Strategic information transmission. Econometrica 50, 1431-1451], and we show how analogy grouping may give rise to betting in zero-sum betting games such as those studied to illustrate the no trade theorem.

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Bibliographic Info

Paper provided by UCLA Department of Economics in its series Levine's Bibliography with number 122247000000000252.

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Date of creation: 05 Jun 2006
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Handle: RePEc:cla:levrem:122247000000000252

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References

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  1. Dekel, Eddie & Fudenberg, Drew & Levine, David K., 2004. "Learning to play Bayesian games," Games and Economic Behavior, Elsevier, vol. 46(2), pages 282-303, February.
  2. Dirk Bergemann & Stephen Morris, 2003. "Robust Mechanism Design," Cowles Foundation Discussion Papers 1421, Cowles Foundation for Research in Economics, Yale University.
  3. Philippe Jehiel & Steffen Huck & Tom Rutter, 2007. "Learning Spillover and Analogy-based Expectations: a Multi-Game Experiment," Levine's Bibliography 843644000000000120, UCLA Department of Economics.
  4. Erik Eyster & Matt Rabin, 2003. "Cursed Equilibrium," Method and Hist of Econ Thought 0303002, EconWPA.
  5. Hans Carlsson & Eric van Damme, 1993. "Global Games and Equilibrium Selection," Levine's Working Paper Archive 122247000000001088, David K. Levine.
  6. Board, Oliver J. & Blume, Andreas & Kawamura, Kohei, 2007. "Noisy talk," Theoretical Economics, Econometric Society, vol. 2(4), December.
  7. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  8. Philippe Jeniel, 2001. "Analogy-Based Expectation Equilibrium," Economics Working Papers 0003, Institute for Advanced Study, School of Social Science.
  9. Stephen Morris & Hyun Song Shin, . ""Approximate Common Knowledge and Co-ordination: Recent Lessons from Game Theory''," CARESS Working Papres 96-07, University of Pennsylvania Center for Analytic Research and Economics in the Social Sciences.
  10. Morgan, J. & Stocken, P., 1998. "An Analysis of Stock Recommendations," Papers 204, Princeton, Woodrow Wilson School - Public and International Affairs.
  11. R. Aumann, 2010. "Subjectivity and Correlation in Randomized Strategies," Levine's Working Paper Archive 389, David K. Levine.
  12. Jackson, Matthew O. & Kalai, Ehud, 1997. "Social Learning in Recurring Games," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 102-134, October.
  13. Rubinstein, Ariel, 1989. "The Electronic Mail Game: Strategic Behavior under "Almost Common Knowledge."," American Economic Review, American Economic Association, vol. 79(3), pages 385-91, June.
  14. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 147-179, August.
  15. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, vol. 52(4), pages 995-1005, July.
  16. Crawford, Vincent P & Sobel, Joel, 1982. "Strategic Information Transmission," Econometrica, Econometric Society, vol. 50(6), pages 1431-51, November.
  17. Kartik, Navin & Ottaviani, Marco & Squintani, Francesco, 2007. "Credulity, lies, and costly talk," Journal of Economic Theory, Elsevier, vol. 134(1), pages 93-116, May.
  18. Morris, Stephen & Postlewaite, Andrew & Shin, Hyun Song, 1995. "Depth of Knowledge and the Effect of Higher Order Uncertainty," Economic Theory, Springer, vol. 6(3), pages 453-67, November.
  19. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, vol. 84(3), pages 488-500, August.
  20. Marco Ottaviani & Francesco Squintani, 2002. "Non-Fully Strategic Information Transmission," Wallis Working Papers WP29, University of Rochester - Wallis Institute of Political Economy.
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