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Revisiting Games of Incomplete Information with Analogy-Based Expectations

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  • Philippe Jehiel
  • Frederic Koessler

    ()
    (THEMA, Université de Cergy-Pontoise)

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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Paper provided by THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise in its series THEMA Working Papers with number 2005-04.

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Date of creation: Jan 2005
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Handle: RePEc:ema:worpap:2005-04

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  1. Hans Carlsson & Eric van Damme, 1993. "Global Games and Equilibrium Selection," Levine's Working Paper Archive 122247000000001088, David K. Levine.
  2. Aumann, Robert J., 1974. "Subjectivity and correlation in randomized strategies," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 67-96, March.
  3. Stephen Morris & Hyun Song Shin, . "Approximate Common Knowledge and Co-ordination: Recent Lessons from Game Theory," Penn CARESS Working Papers, Penn Economics Department 72042421d029130510780dde2, Penn Economics Department.
  4. V. Crawford & J. Sobel, 2010. "Strategic Information Transmission," Levine's Working Paper Archive 544, David K. Levine.
  5. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, Elsevier, vol. 123(2), pages 81-104, August.
  6. Rubinstein, Ariel, 1989. "The Electronic Mail Game: Strategic Behavior under "Almost Common Knowledge."," American Economic Review, American Economic Association, American Economic Association, vol. 79(3), pages 385-91, June.
  7. Stephen Morris & Dirk Bergemann, 2004. "Robust Mechanism Design," Yale School of Management Working Papers, Yale School of Management ysm380, Yale School of Management.
  8. Eddie Dekel & Drew Fudenberg & David K. Levine, 2001. "Learning to Play Bayesian Games," Harvard Institute of Economic Research Working Papers, Harvard - Institute of Economic Research 1926, Harvard - Institute of Economic Research.
  9. Erik Eyster & Matt Rabin, 2003. "Cursed Equilibrium," Method and Hist of Econ Thought, EconWPA 0303002, EconWPA.
  10. Morgan, J. & Stocken, P., 1998. "An Analysis of Stock Recommendations," Papers, Princeton, Woodrow Wilson School - Public and International Affairs 204, Princeton, Woodrow Wilson School - Public and International Affairs.
  11. Samuelson, William F, 1984. "Bargaining under Asymmetric Information," Econometrica, Econometric Society, Econometric Society, vol. 52(4), pages 995-1005, July.
  12. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, Elsevier, vol. 26(1), pages 17-27, February.
  13. Akerlof, George A, 1970. "The Market for 'Lemons': Quality Uncertainty and the Market Mechanism," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 84(3), pages 488-500, August.
  14. 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.
  15. Krishna, Vijay & Morgan, John, 2004. "The art of conversation: eliciting information from experts through multi-stage communication," Journal of Economic Theory, Elsevier, Elsevier, vol. 117(2), pages 147-179, August.
  16. Matthew Jackson & Ehud Kalai, 1995. "Social Learning in Recurring Games," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 1138, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Hyun Song Shin & Andrew Postlewaite & Stephen Morris, 1995. "Depth of knowledge and the effect of higher order uncertainty," Economic Theory, Springer, Springer, vol. 6(3), pages 453-467.
  18. Marco Ottaviani & Francesco Squintani, 2002. "Non-Fully Strategic Information Transmission," Wallis Working Papers, University of Rochester - Wallis Institute of Political Economy WP29, University of Rochester - Wallis Institute of Political Economy.
  19. Board, Oliver J. & Blume, Andreas & Kawamura, Kohei, 2007. "Noisy talk," Theoretical Economics, Econometric Society, Econometric Society, vol. 2(4), December.
  20. 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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