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Cursed Sequential Equilibrium

Author

Listed:
  • Meng-Jhang Fong
  • Po-Hsuan Lin
  • Thomas R. Palfrey

Abstract

This paper develops a framework to extend the strategic form analysis of cursed equilibrium (CE) developed by Eyster and Rabin (2005) to multistage games. The approach uses behavioral strategies rather than normal form mixed strategies and imposes sequential rationality. We define and characterize properties of cursed sequential equilibrium (CSE) and apply it to four canonical economic applications: signaling games, reputation building, durable goods monopoly, and the dirty faces game. These applications illustrate various implications of CSE, show how and why it differs from sequential equilibrium and CE, and provide evidence from laboratory experiments that support the empirical relevance of CSE.

Suggested Citation

  • Meng-Jhang Fong & Po-Hsuan Lin & Thomas R. Palfrey, 2025. "Cursed Sequential Equilibrium," American Economic Review, American Economic Association, vol. 115(8), pages 2616-2658, August.
    • Handle: RePEc:aea:aecrev:v:115:y:2025:i:8:p:2616-58
    DOI: 10.1257/aer.20231130
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    References listed on IDEAS

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    1. Po-Hsuan Lin, 2022. "Cognitive Hierarchies in Multi-Stage Games of Incomplete Information: Theory and Experiment," Papers 2208.11190, arXiv.org, revised Nov 2023.
    2. Guth, Werner & Ockenfels, Peter & Ritzberger, Klaus, 1995. "On durable goods monopolies an experimental study of intrapersonal price competition and price discrimination over time," Journal of Economic Psychology, Elsevier, vol. 16(2), pages 247-274, July.
    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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