On Myopic Equilibria in Dynamic Games with Endogenous Discounting
AbstractWe 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 InfoPaper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 070.
Date of creation: Dec 2005
Date of revision:
dynamic game; myopic equlibrium; discounting; equilibrium selection.;
Other versions of this item:
- Wilko Bolt & Alexander F. Tieman, 2006. "On Myopic Equilibria in Dynamic Games with Endogenous Discounting," IMF Working Papers 06/302, International Monetary Fund.
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
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- Wilko Bolt & Alexander F. Tieman, 2004.
"Banking Competition, Risk and Regulation,"
Scandinavian Journal of Economics,
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- W. Bolt & A.F. Tieman, 2001. "Banking competition, risk and regulation," DNB Staff Reports (discontinued) 70, Netherlands Central Bank.
- Alexander F. Tieman & Wilko Bolt, 2004. "Banking Competition, Risk, and Regulation," IMF Working Papers 04/11, International Monetary Fund.
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- Hausken, Kjell, 2005. "The battle of the sexes when the future is important," Economics Letters, Elsevier, vol. 87(1), pages 89-93, April.
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