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Bayesian equilibrium by iterative conjectures: a theory of games with players forming conjectures iteratively starting with first order uninformative conjectures

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  • Teng, Jimmy

Abstract

This paper introduces a new game theoretic equilibrium, Bayesian equilibrium by iterative conjectures (BEIC). It requires agents to make predictions, starting from first order uninformative predictive distribution functions (or conjectures) and keep updating with statistical decision theoretic and game theoretic reasoning until a convergence of conjectures is achieved. In a BEIC, rationality is achieved for strategies and conjectures. The BEIC approach is capable of analyzing a larger set of games than current Nash Equilibrium based games theory, including games with inaccurate observations, games with unstable equilibrium and games with double or multiple sided incomplete information games. On the other hand, for the set of games analyzed by the current games theory, it generates far lesser equilibriums and normally generates only a unique equilibrium. It also resolves inconsistencies in equilibrium results by different solution concepts in current games theory.

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File URL: http://mpra.ub.uni-muenchen.de/37969/
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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 37969.

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Date of creation: 15 Dec 2011
Date of revision: 06 Apr 2012
Handle: RePEc:pra:mprapa:37969

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Keywords: new equilibrium concept; iterative conjectures; convergence; Bayesian decision theory; Schelling point;

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  1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262582384, December.
  2. John C. Harsanyi, 1982. "Rejoinder to Professors Kadane and Larkey," Management Science, INFORMS, INFORMS, vol. 28(2), pages 124-125, February.
  3. Joseph B. Kadane & Patrick D. Larkey, 1982. "Subjective Probability and the Theory of Games," Management Science, INFORMS, INFORMS, vol. 28(2), pages 113-120, February.
  4. Joseph B. Kadane & Patrick D. Larkey, 1982. "Reply to Professor Harsanyi," Management Science, INFORMS, INFORMS, vol. 28(2), pages 124-124, February.
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