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On Myopic Equilibria in Dynamic Games with Endogenous Discounting

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  • Wilko Bolt
  • Alexander Tieman

Abstract

We derive a stationary equilibrium in a two-player multi-stage game with endogenous discounting. At each stage, the probability to reach the next stage is determined by the players' current actions. We assume that the players are myopic in the sense that they take the future strategies of their opponents as given. We find that the stationary myopic equilibrium of the infinite-horizon multi-stage game corresponds to the infinite repetition of a Nash equilibrium of an induced (one-shot) limit game. Interestingly, this stationary myopic equilibrium is singled out when studying limiting equilibria of the associated multi-stage game with a finite horizon.

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Bibliographic Info

Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 070.

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Date of creation: Dec 2005
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Handle: RePEc:dnb:dnbwpp:070

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Keywords: dynamic game; myopic equlibrium; discounting; equilibrium selection.;

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  1. Hausken, Kjell, 2005. "The battle of the sexes when the future is important," Economics Letters, Elsevier, vol. 87(1), pages 89-93, April.
  2. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  3. Alexander F. Tieman & Wilko Bolt, 2004. "Banking Competition, Risk, and Regulation," IMF Working Papers 04/11, International Monetary Fund.
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