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How burning money requires a lot of rationality to be effective

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  • Seel, Christian
  • Wichardt, Philipp C.

Abstract

This paper proposes an extension of the valuation equilibrium concept (Jehiel and Samet, 2007), which partly endogenises the underlying grouping of actions. The effect on equilibrium predictions is illustrated in a burning money game.

Suggested Citation

  • Seel, Christian & Wichardt, Philipp C., 2012. "How burning money requires a lot of rationality to be effective," Economics Letters, Elsevier, vol. 115(1), pages 111-113.
    • Handle: RePEc:eee:ecolet:v:115:y:2012:i:1:p:111-113
    DOI: 10.1016/j.econlet.2011.11.044
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    References listed on IDEAS

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    1. , & ,, 2007. "Valuation equilibrium," Theoretical Economics, Econometric Society, vol. 2(2), June.
    2. Ben-Porath, Elchanan & Dekel, Eddie, 1992. "Signaling future actions and the potential for sacrifice," Journal of Economic Theory, Elsevier, vol. 57(1), pages 36-51.
    3. Huck, Steffen & Muller, Wieland, 2005. "Burning money and (pseudo) first-mover advantages: an experimental study on forward induction," Games and Economic Behavior, Elsevier, vol. 51(1), pages 109-127, April.
    4. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
    5. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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