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Learning from Inferred Foregone Payoffs

Author

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  • Ralph-C. Bayer

    (School of Economics, University of Adelaide)

  • Hang Wu

    (School of Economics, University of Adelaide)

Abstract

A player's knowledge of her own actions and the corresponding own payoffs may enable her to infer or form belief about what the payoffs would have been if she had played differently. In studies of low-information game settings, however, players' ex-post inferences and beliefs have been largely ignored by quantitative learning models. For games with large strategy spaces, the omission may seriously weaken the predictive power of a learning model. We propose an extended payoff assessment learning model which explicitly incorporates players' ex-post inferences and beliefs about the foregone payoffs for unplayed strategies. We use the model to explain the pricing and learning behavior observed in a Bertrand market experiment. Maximum likelihood estimation shows that the extended model organizes the data remarkably well at both aggregate level and individual level.

Suggested Citation

  • Ralph-C. Bayer & Hang Wu, 2013. "Learning from Inferred Foregone Payoffs," School of Economics Working Papers 2013-22, University of Adelaide, School of Economics.
  • Handle: RePEc:adl:wpaper:2013-22
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    File URL: https://media.adelaide.edu.au/economics/papers/doc/wp2013-22.pdf
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    Cited by:

    1. Bayer, Ralph-C & Ke, Changxia, 2018. "What causes rockets and feathers? An experimental investigation," Journal of Economic Behavior & Organization, Elsevier, vol. 153(C), pages 223-237.
    2. Naoki Funai, 2019. "Convergence results on stochastic adaptive learning," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 68(4), pages 907-934, November.

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    More about this item

    Keywords

    Learning; Ex-Post Inference; Partial Information; Bertrand Duopoly;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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