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The Strategies Behind Their Actions: A Method To Infer Repeated-Game Strategies And An Application To Buyer Behavior

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  • Jim Engle-Warnick

    ()

  • Bradley Ruffle

    ()

Abstract

We introduce a Bayesian method to infer repeted-game strategies in the form of if-then statements that best describe individuals' observed actions. We apply this method to buyer behavior in posted-offer market experiments. While the strategies of one-quarter of the buyers in our experiments correspond to the game-theoretic prediction of passive price-taking, for three-quarters of the buyers we infer repeated-game strategies that condition on time, price, and combinations of time and price. Our analysis fills a gap in a literature that studies the convergence of pricing behavior in posted-offer markets but has not addressed the market as a repeated game. We propose that strategy inference should at least complement existing methods of statistical inference on observed strategic behavior.

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Bibliographic Info

Paper provided by McGill University, Department of Economics in its series Departmental Working Papers with number 2005-04.

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Length: 43 pages
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:mcl:mclwop:2005-04

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  1. Reinhard Selten & Michael Mitzkewitz & Gerald R. Uhlich, 1997. "Duopoly Strategies Programmed by Experienced Players," Econometrica, Econometric Society, vol. 65(3), pages 517-556, May.
  2. John Duffy & Jim Warnick, 1999. "Using Symbolic Regression to Infer Strategies from Experimental Data," Computing in Economics and Finance 1999 1033, Society for Computational Economics.
  3. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  4. Jim Engle-Warnick & Bradley Ruffle, 2006. "Buyer Concentration As A Source Of Countervailing Power: Evidence From Experimental Posted-Offer Markets," Departmental Working Papers 2006-12, McGill University, Department of Economics.
  5. Selten, Reinhard & Stoecker, Rolf, 1986. "End behavior in sequences of finite Prisoner's Dilemma supergames A learning theory approach," Journal of Economic Behavior & Organization, Elsevier, vol. 7(1), pages 47-70, March.
  6. Inderst, Roman & Wey, Christian, 2003. " Bargaining, Mergers, and Technology Choice in Bilaterally Oligopolistic Industries," RAND Journal of Economics, The RAND Corporation, vol. 34(1), pages 1-19, Spring.
  7. Smith, Vernon L, 1976. "Experimental Economics: Induced Value Theory," American Economic Review, American Economic Association, vol. 66(2), pages 274-79, May.
  8. 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.
  9. Davis, Douglas D. & Holt, Charles A., 2008. "The Exercise of Market Power in Laboratory Experiments," Handbook of Experimental Economics Results, Elsevier.
  10. David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
  11. Engle-Warnick, Jim, 2003. "Inferring strategies from observed actions: a nonparametric, binary tree classification approach," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11), pages 2151-2170.
  12. Jim Engle-Warnick, 2001. "Inferring Strategies from Observed Actions: A Nonparametric, Binary Tree Classification Approach," Economics Papers 2001-W14, Economics Group, Nuffield College, University of Oxford.
  13. John F. Geweke & Michael P. Keane, 1996. "Bayesian inference for dynamic choice models without the need for dynamic programming," Working Papers 564, Federal Reserve Bank of Minneapolis.
  14. El-Gamal, Mahmoud A. & Grether, David M., 1995. "Are People Bayesian? Uncovering Behavioral Strategies," Working Papers 919, California Institute of Technology, Division of the Humanities and Social Sciences.
  15. Manski, Charles F., 2002. "Identification of decision rules in experiments on simple games of proposal and response," European Economic Review, Elsevier, vol. 46(4-5), pages 880-891, May.
  16. Geweke, John & Keane, Michael, 2001. "Computationally intensive methods for integration in econometrics," Handbook of Econometrics, in: J.J. Heckman & E.E. Leamer (ed.), Handbook of Econometrics, edition 1, volume 5, chapter 56, pages 3463-3568 Elsevier.
  17. Daniel Houser & Michael Keane & Kevin McCabe, 2002. "Behavior in a dynamic decision problem: An analysis of experimental evidence using a bayesian type classification algorithm," Experimental 0211001, EconWPA.
  18. Dale O. Stahl & Paul W. Wilson, 2010. "On Players' Models of Other Players: Theory and Experimental Evidence," Levine's Working Paper Archive 542, David K. Levine.
  19. Bradley J. Ruffle, 2000. "Some factors affecting demand withholding in posted-offer markets," Economic Theory, Springer, vol. 16(3), pages 529-544.
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Citations

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Cited by:
  1. Jim Engle-Warnick, 2001. "Inferring Strategies from Observed Actions: A Nonparametric, Binary Tree Classification Approach," Economics Papers 2001-W14, Economics Group, Nuffield College, University of Oxford.
  2. Todd R. Kaplan & Bradley J. Ruffle, 2004. "It's My Turn . . . Please, After You: An Experimental Study of Cooperation and Social Conventions," Discussion Papers 0403, Exeter University, Department of Economics.
  3. Engle-Warnick, Jim & Slonim, Robert L., 2004. "The evolution of strategies in a repeated trust game," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 553-573, December.

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