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Payoff Information and Self-Confirming Equilibrium

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  • Eddie Dekel
  • Drew Fudenberg
  • David K. Levine

Abstract

In a self-confirming equilibrium, each player correctly forecasts the actions that opponents will take along the equilibrium path, but may be mistaken about the way that opponents would respond to deviations. This models a steady state of a learning process in which players observe actions played by their opponents, rather than a complete specification of their strategies. Consequently, players need not receive evidence that their forecasts of off-path play are incorrect. In practice, players understand that opponents are rational and have some information about their opponents payoffs. This paper develops a refinement of self-confirming equilibrium that incorporates the effects of such information. We show that this concept is robust. We also discuss its relationship to other concepts. In particular, we show that it is closely connected to assuming almost common certainty of payoffs in an epistemic model with independent beliefs.

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Bibliographic Info

Paper provided by Harvard - Institute of Economic Research in its series Harvard Institute of Economic Research Working Papers with number 1774.

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Date of creation: 1996
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Handle: RePEc:fth:harver:1774

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  1. Miguel Costa-Gomes & Vincent P. Crawford & Bruno Broseta, . "Cognition and Behavior in Normal-Form Games:An Experimental Study," Discussion Papers 00/45, Department of Economics, University of York.
  2. Ben-Porath, Elchanan, 1997. "Rationality, Nash Equilibrium and Backwards Induction in Perfect-Information Games," Review of Economic Studies, Wiley Blackwell, vol. 64(1), pages 23-46, January.
  3. Philip J. Reny, 1992. "Rationality in Extensive-Form Games," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 103-118, Fall.
  4. Battigalli, Pierpaolo, 2003. "Rationalizability in infinite, dynamic games with incomplete information," Research in Economics, Elsevier, vol. 57(1), pages 1-38, March.
  5. D. B. Bernheim, 2010. "Rationalizable Strategic Behavior," Levine's Working Paper Archive 514, David K. Levine.
  6. Kaushik Basu, 2010. "Strategic Irrationality in Extensive Games," Levine's Working Paper Archive 375, David K. Levine.
  7. Blume, Lawrence E & Zame, William R, 1994. "The Algebraic Geometry of Perfect and Sequential Equilibrium," Econometrica, Econometric Society, vol. 62(4), pages 783-94, July.
  8. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  9. P. Reny, 2010. "Common Belief and the Theory of Games with Perfect Information," Levine's Working Paper Archive 386, David K. Levine.
  10. E. Dekel & D. Fudenberg, 2010. "Rational Behavior with Payoff Uncertainty," Levine's Working Paper Archive 379, David K. Levine.
  11. Drew Fudenberg & David Kreps & David K. Levine, 1988. "On the Robustness of Equilibrium Refinements," Levine's Working Paper Archive 227, David K. Levine.
  12. Tan, Tommy Chin-Chiu & da Costa Werlang, Sergio Ribeiro, 1988. "The Bayesian foundations of solution concepts of games," Journal of Economic Theory, Elsevier, vol. 45(2), pages 370-391, August.
  13. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  14. Drew Fudenberg & David K. Levine, 1993. "Self-Confirming Equilibrium," Levine's Working Paper Archive 2147, David K. Levine.
  15. Rubinstein Ariel & Wolinsky Asher, 1994. "Rationalizable Conjectural Equilibrium: Between Nash and Rationalizability," Games and Economic Behavior, Elsevier, vol. 6(2), pages 299-311, March.
  16. D. Fudenberg & D. M. Kreps, 2010. "Learning in Extensive Games, I: Self-Confirming Equilibrium," Levine's Working Paper Archive 382, David K. Levine.
  17. Drew Fudenberg & David K. Levine, 1993. "Steady State Learning and Nash Equilibrium," Levine's Working Paper Archive 373, David K. Levine.
  18. Gul, Faruk, 1996. "Rationality and Coherent Theories of Strategic Behavior," Journal of Economic Theory, Elsevier, vol. 70(1), pages 1-31, July.
  19. T. Börgers, 2010. "Weak Dominance and Approximate Common Knowledge," Levine's Working Paper Archive 378, David K. Levine.
  20. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, December.
  21. Pearce, David G, 1984. "Rationalizable Strategic Behavior and the Problem of Perfection," Econometrica, Econometric Society, vol. 52(4), pages 1029-50, July.
  22. D. Pearce, 2010. "Rationalizable Strategic Behavior and the Problem of Perfection," Levine's Working Paper Archive 523, David K. Levine.
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