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Stochastic Game Theory: Adjustment to Equilibrium Under Noisy Directional Learning

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Author Info

  • Simon P. Anderson

    ()

  • Jacob K. Goeree

    ()

  • Charles A. Holt

    ()

Abstract

This paper presents a dynamic model in which agents adjust their decisions in the direction of higher payoffs, subject to random error. This process produces a probability distribution of players' decisions whose evolution over time is determined by the Fokker-Planck equation. The dynamic process is stable for all potential games, a class of payoff structures that includes several widely studied games. In equilibrium, the distributions that determine expected payoffs correspond to the distributions that arise from the logit function applied to those expected payoffs. This "logit equilibrium" forms a stochastic generalization of the Nash equilibrium and provides a possible explanation of anomalous laboratory data.

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File URL: http://www.virginia.edu/economics/RePEc/vir/virpap/papers/virpap327.pdf
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Bibliographic Info

Paper provided by University of Virginia, Department of Economics in its series Virginia Economics Online Papers with number 327.

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Length: 30 pages
Date of creation: Jul 1999
Date of revision:
Handle: RePEc:vir:virpap:327

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Web page: http://www.virginia.edu/economics/home.html

Related research

Keywords: bounded rationality; noisy directional learning; Fokker- Planck equation; potential games; logit equilibrium; stochastic potential.;

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References

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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.:
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Full references (including those not matched with items on IDEAS)

Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Article Summary: Noisy Directional Learning and the Logit Equilibrium
    by John Barrdear in John Barrdear on 2009-08-24 13:38:19
Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
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Cited by:
  1. JIMENEZ Edward, 2002. "Unified Game Theory," Computing in Economics and Finance 2002 25, Society for Computational Economics.
  2. Veronika Grimm & Jaromir Kovarik & Giovanni Ponti, 2008. "Fixed price plus rationing: an experiment," Experimental Economics, Springer, vol. 11(4), pages 402-422, December.
  3. Basov, S., 2001. "An Evolutionary Model of Reciprocity," Department of Economics - Working Papers Series 812, The University of Melbourne.
  4. Philip A. Haile & Ali Hortacsu & Grigory Kosenok, 2003. "On the Empirical Content of Quantal Response Equilibrium," Levine's Bibliography 666156000000000215, UCLA Department of Economics.
  5. C. Monica Capra & Susana Cabrera & Rosario Gómez, 2003. "The Effects of Common Advice on One-shot Traveler’s Dilemma Games: Explaining Behavior through an Introspective Model with Errors," Economic Working Papers at Centro de Estudios Andaluces E2003/17, Centro de Estudios Andaluces.
  6. Michihiro Kandori, 2002. "The Erosion and Sustainability of Norms and Morale," Levine's Working Paper Archive 506439000000000030, David K. Levine.
  7. Suren Basov, 2005. "Bounded rationality: static versus dynamic approaches," Economic Theory, Springer, vol. 25(4), pages 871-885, 06.
  8. Simon P Anderson & Jacob K Goeree & Charles A Holt, 2001. "A Thoeretical Anlysis of Altruism and Decision Error in Public Goods Games," Levine's Working Paper Archive 563824000000000075, David K. Levine.
  9. Stegeman, Mark & Rhode, Paul, 2004. "Stochastic Darwinian equilibria in small and large populations," Games and Economic Behavior, Elsevier, vol. 49(1), pages 171-214, October.
  10. Basov, S., 2001. "A Noisy Model of Individual Behaviour," Department of Economics - Working Papers Series 791, The University of Melbourne.
  11. Olivier Armantier, 2001. "Does Observation Influence Learning?," Department of Economics Working Papers 01-04, Stony Brook University, Department of Economics.
  12. Josef Hofbauer & William H. Sandholm, 2001. "Evolution and Learning in Games with Randomly Disturbed Payoffs," Vienna Economics Papers 0205, University of Vienna, Department of Economics.

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