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Perfect Sequential Reciprocity and Dynamic Consistency

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  • Penta, Antonio

Abstract

Dufwenberg and Kirchsteiger�s (2004) extends Rabin�s (1993) theory of reciprocity in a dynamic sense, introducing a rule of revision for player�s beliefs. The Sequential Reciprocity Equilibrium [SRE] they define can be dynamically inconsistent. In this article it is argued that such dynamic inconsistency is not intrinsically related to issues of reciprocity, but rather to the particular way the beliefs�updating process is modeled. A refinement of the SRE, which is both dynamically consistent and, it is argued, more sound to assumptions usually made in the literature of information economics and philosophy, is proposed.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10261.

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Date of creation: Jun 2004
Date of revision: Sep 2007
Handle: RePEc:pra:mprapa:10261

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Keywords: Reciprocity; � Dynamic Consistency;

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  1. Shane Frederick & George Loewenstein & Ted O'Donoghue, 2002. "Time Discounting and Time Preference: A Critical Review," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 40(2), pages 351-401, June.
  2. Pierpaolo Battigalli & Martin Dufwenberg, 2005. "Dynamic Psychological Games," Levine's Bibliography 784828000000000046, UCLA Department of Economics.
  3. Stalnaker, Robert, 1998. "Belief revision in games: forward and backward induction1," Mathematical Social Sciences, Elsevier, Elsevier, vol. 36(1), pages 31-56, July.
  4. Dufwenberg, M. & Kirchsteiger, G., 1998. "A Theory of Sequential Reciprocity," Discussion Paper, Tilburg University, Center for Economic Research 1998-37, Tilburg University, Center for Economic Research.
  5. Jon Elster, 1998. "Emotions and Economic Theory," Journal of Economic Literature, American Economic Association, American Economic Association, vol. 36(1), pages 47-74, March.
  6. Battigalli, Pierpaolo & Bonanno, Giacomo, 1999. "Recent results on belief, knowledge and the epistemic foundations of game theory," Research in Economics, Elsevier, Elsevier, vol. 53(2), pages 149-225, June.
  7. Blume, Lawrence & Brandenburger, Adam & Dekel, Eddie, 1991. "Lexicographic Probabilities and Equilibrium Refinements," Econometrica, Econometric Society, Econometric Society, vol. 59(1), pages 81-98, January.
  8. Blume, Lawrence & Brandenburger, Adam & Dekel, Eddie, 1991. "Lexicographic Probabilities and Choice under Uncertainty," Econometrica, Econometric Society, Econometric Society, vol. 59(1), pages 61-79, January.
  9. Battigalli, Pierpaolo & Siniscalchi, Marciano, 1999. "Hierarchies of Conditional Beliefs and Interactive Epistemology in Dynamic Games," Journal of Economic Theory, Elsevier, Elsevier, vol. 88(1), pages 188-230, September.
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