Revisiting Games of Incomplete Information with Analogy-Based Expectations

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.(This abstract was borrowed from another version of this item.)(This abstract was borrowed from another version of this item.)