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Three steps ahead

Author

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  • Heller, Yuval

    (Department of Economics, University of Oxford.)

Abstract

We study a variant of the repeated Prisoner's Dilemma with uncertain horizon, in which each player chooses his foresight ability: that is, the timing in which he is informed about the realized length of the interaction. In addition, each player has an independent probability to observe the opponent's foresight ability. We show that if this probability is not too close to zero or one, then the game admits an evolutionarily stable strategy, in which agents who look one step ahead and agents who look three steps ahead co-exist. Moreover, this is the unique evolutionarily stable strategy in which players play efficiently at early stages of the interaction. We interpret our results as a novel evolutionary foundation for limited foresight, and as a new mechanism to induce cooperation in the repeated Prisoner's Dilemma..

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  • Heller, Yuval, 2015. "Three steps ahead," Theoretical Economics, Econometric Society, vol. 10(1), January.
    • Handle: RePEc:the:publsh:1660
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    Citations

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    Cited by:

    1. Heller, Yuval & Mohlin, Erik, 2019. "Coevolution of deception and preferences: Darwin and Nash meet Machiavelli," Games and Economic Behavior, Elsevier, vol. 113(C), pages 223-247.
    2. Nax, Heinrich Harald & Newton, Jonathan, 2022. "Deep and shallow thinking in the long run," Theoretical Economics, Econometric Society, vol. 17(4), November.
    3. Heller, Yuval, 2014. "Stability and trembles in extensive-form games," Games and Economic Behavior, Elsevier, vol. 84(C), pages 132-136.
    4. Sivan Frenkel & Yuval Heller & Roee Teper, 2018. "The Endowment Effect As Blessing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 59(3), pages 1159-1186, August.
    5. Herold, Florian & Kuzmics, Christoph, 2020. "The evolution of taking roles," Journal of Economic Behavior & Organization, Elsevier, vol. 174(C), pages 38-63.
    6. Kevin He & Jonathan Libgober, 2020. "Evolutionarily Stable (Mis)specifications: Theory and Applications," Papers 2012.15007, arXiv.org, revised Feb 2023.
    7. Sawa, Ryoji, 2021. "A stochastic stability analysis with observation errors in normal form games," Games and Economic Behavior, Elsevier, vol. 129(C), pages 570-589.
    8. Anujit Chakraborty, 2022. "Motives Behind Cooperation in Finitely Repeated Prisoner's Dilemma," Working Papers 353, University of California, Davis, Department of Economics.
    9. Yuval Heller & Eyal Winter, 2016. "Rule Rationality," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(3), pages 997-1026, August.
    10. Heller, Yuval & Mohlin, Erik, 2015. "Stable Observable Behavior," MPRA Paper 63013, University Library of Munich, Germany.
    11. Rampal, Jeevant, 2022. "Limited Foresight Equilibrium," Games and Economic Behavior, Elsevier, vol. 132(C), pages 166-188.
    12. Jonathan Newton, 2018. "Evolutionary Game Theory: A Renaissance," Games, MDPI, vol. 9(2), pages 1-67, May.

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    More about this item

    Keywords

    Limited foresight; prisoners' dilemma; limit ESS;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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