Solving Two Sided Incomplete Information Games with Bayesian Iterative Conjectures Approach
AbstractThis paper proposes a way to solve two (and multiple) sided incomplete information games which generally generates a unique equilibrium. The approach uses iterative conjectures updated by game theoretic and Bayesian statistical decision theoretic reasoning. Players in the games form conjectures about what other players want to do, starting from first order uninformative conjectures and keep updating with games theoretic and Bayesian statistical decision theoretic reasoning until a convergence of conjectures is achieved. The resulting convergent conjectures and the equilibrium (which is named Bayesian equilibrium by iterative conjectures) they supported form the solution of the game. The paper gives two examples which show that the unique equilibrium generated by this approach is compellingly intuitive and insightful. The paper also solves an example of a three sided incomplete information simultaneous game.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 40061.
Date of creation: 01 Mar 2012
Date of revision: 12 Jul 2012
new equilibrium concept; two and multiple sided incomplete information; iterative conjectures; convergence; Bayesian decision theory; Schelling point;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-07-23 (All new papers)
- NEP-CTA-2012-07-23 (Contract Theory & Applications)
- NEP-GTH-2012-07-23 (Game Theory)
- NEP-HPE-2012-07-23 (History & Philosophy of Economics)
- NEP-MIC-2012-07-23 (Microeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Peter Cramton, 1984.
"Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty,"
Papers of Peter Cramton
84res, University of Maryland, Department of Economics - Peter Cramton, revised 09 Jun 1998.
- Cramton, Peter C, 1984. "Bargaining with Incomplete Information: An Infinite-Horizon Model with Two-Sided Uncertainty," Review of Economic Studies, Wiley Blackwell, vol. 51(4), pages 579-93, October.
- Mariotti, Marco, 1995. "Is Bayesian Rationality Compatible with Strategic Rationality?," Economic Journal, Royal Economic Society, vol. 105(432), pages 1099-1109, September.
- John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
- Schweizer, Urs, 1989. "Litigation and Settlement under Two-Sided Incomplete Information," Review of Economic Studies, Wiley Blackwell, vol. 56(2), pages 163-77, April.
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