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Evidential equilibria: Heuristics and biases in static games

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  • Sanjit Dhami

    ()

  • Ali al-Nowaihi

    ()

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    Abstract

    Standard equilibrium concepts in game theory find it difficult to explain the empirical evidence in a large number of static games such as prisoners’ dilemma, voting, public goods, oligopoly, etc. Under uncertainty about what others will do in one-shot games of complete and incomplete information, evidence suggests that people often use evidential reasoning (ER), i.e., they assign diagnostic significance to their own actions in forming beliefs about the actions of other like- minded players. This is best viewed as a heuristic or bias relative to the standard approach. We provide a formal theoretical framework that incorporates ER into static games by proposing evidential games and the relevant solution concept- evidential equilibrium (EE). We derive the relation between a Nash equilibrium and an EE. We also apply EE to several common games including the prisoners’ dilemma and oligopoly games.

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    Bibliographic Info

    Paper provided by Department of Economics, University of Leicester in its series Discussion Papers in Economics with number 13/25.

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    Date of creation: Nov 2013
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    Handle: RePEc:lec:leecon:13/25

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    Keywords: Evidential reasoning; causal reasoning; evidential games; social projec- tion functions; ingroups and outgroups; evidential equilibria and consistent eviden- tial equilibria; Nash equilibria; the prisoners.dilemma and oligopoly games; common knowledge and epistemic foundations.;

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    10. Simon Gachter & Ernst Fehr, 2000. "Cooperation and Punishment in Public Goods Experiments," American Economic Review, American Economic Association, American Economic Association, vol. 90(4), pages 980-994, September.
    11. Vincent P Crawford & Nagore Iriberri, 2007. "Level-k Auctions: Can a Non-Equilibrium Model of Strategic Thinking Explain the Winner's Curse and Overbidding in Private-Value Auctions?," Levine's Bibliography 321307000000001005, UCLA Department of Economics.
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