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Modeling the Economic Interaction of Agents with Diverse Abilities to Recognize Equilibrium Patterns

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Listed:
  • Michele Piccione
  • Ariel Rubinstein

Abstract

We model differences among agents in their ability to recognise temporal patterns of prices. Using the concept of DeBruijin sequences in two dynamic models of markets, we demonstrate the existence of equilibria in which prices fluctuate in a pattern that is independent of the fundamentals and that can be recognised only by the more competent agents.
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Suggested Citation

  • Michele Piccione & Ariel Rubinstein, 2010. "Modeling the Economic Interaction of Agents with Diverse Abilities to Recognize Equilibrium Patterns," Levine's Working Paper Archive 506439000000000108, David K. Levine.
  • Handle: RePEc:cla:levarc:506439000000000108
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    References listed on IDEAS

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    1. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, May.
    2. Gilboa Itzhak & Schmeidler David, 1994. "Infinite Histories and Steady Orbits in Repeated Games," Games and Economic Behavior, Elsevier, vol. 6(3), pages 370-399, May.
    3. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-924, July.
    4. Sabourian, Hamid, 1998. "Repeated games with M-period bounded memory (pure strategies)," Journal of Mathematical Economics, Elsevier, vol. 30(1), pages 1-35, August.
    5. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
    6. Lehrer Ehud, 1994. "Finitely Many Players with Bounded Recall in Infinitely Repeated Games," Games and Economic Behavior, Elsevier, vol. 7(3), pages 390-405, November.
    7. O. Gossner & P. Hernandez, 2001. "On the complexity of coordination," THEMA Working Papers 2001-21, THEMA (THéorie Economique, Modélisation et Applications), Université de Cergy-Pontoise.
    8. Rubinstein, Ariel, 1993. "On Price Recognition and Computational Complexity in a Monopolistic Model," Journal of Political Economy, University of Chicago Press, vol. 101(3), pages 473-484, June.
    9. Ben-Porath Elchanan, 1993. "Repeated Games with Finite Automata," Journal of Economic Theory, Elsevier, vol. 59(1), pages 17-32, February.
    10. Lehrer, Ehud, 1988. "Repeated games with stationary bounded recall strategies," Journal of Economic Theory, Elsevier, vol. 46(1), pages 130-144, October.
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    Citations

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    Cited by:

    1. Sürücü, Oktay, 2016. "Welfare improving discrimination based on cognitive limitations," Research in Economics, Elsevier, vol. 70(4), pages 608-622.
    2. repec:dau:papers:123456789/6127 is not listed on IDEAS
    3. B. Luppi, 2006. "Price Competition over Boundedly Rational Agents," Working Papers 565, Dipartimento Scienze Economiche, Universita' di Bologna.
    4. Kfir Eliaz & Ran Spiegler, 2006. "Contracting with Diversely Naive Agents," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 689-714.
    5. repec:nea:journl:y:2017:i:34:p:166-175 is not listed on IDEAS
    6. Michele Piccione & Ran Spiegler, 2012. "Price Competition Under Limited Comparability," The Quarterly Journal of Economics, Oxford University Press, vol. 127(1), pages 97-135.
    7. Ran Spiegler, 2016. "Bayesian Networks and Boundedly Rational Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1243-1290.
    8. Spiegler, Ran, 2006. "Competition over agents with boundedly rational expectations," Theoretical Economics, Econometric Society, vol. 1(2), pages 207-231, June.
    9. Jehiel, Philippe, 2015. "Investment strategy and selection bias: An equilibrium perspective on overconfidence," CEPR Discussion Papers 10868, C.E.P.R. Discussion Papers.
    10. Oktay Sürücü, 2014. "Lying for the Greater Good: Bounded Rationality in a Team," The International Journal of Economic Behavior - IJEB, Faculty of Business and Administration, University of Bucharest, vol. 4(1), pages 151-163.
    11. Yuval Salant, 2003. "Limited Computational Resources Favor Rationality," Discussion Paper Series dp320, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem.
    12. David Ettinger & Philippe Jehiel, 2004. "Towards a Theory of Deception," Levine's Bibliography 122247000000000247, UCLA Department of Economics.
    13. Spiegler, Ran, 2016. "Can Agents with Causal Misperceptions be Systematically Fooled?," CEPR Discussion Papers 11379, C.E.P.R. Discussion Papers.
    14. Spiegler, Ran, 2014. "Bayesian Networks and Boundedly Rational Expectations," Foerder Institute for Economic Research Working Papers 275828, Tel-Aviv University > Foerder Institute for Economic Research.
    15. Kfir Eliaz & Ran Spiegler, 2011. "Consideration Sets and Competitive Marketing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 235-262.
    16. Renault, Jérôme & Scarsini, Marco & Tomala, Tristan, 2008. "Playing off-line games with bounded rationality," Mathematical Social Sciences, Elsevier, vol. 56(2), pages 207-223, September.
    17. Glazer, Jacob & Rubinstein, Ariel, 2014. "Complex Questionnaires," Foerder Institute for Economic Research Working Papers 275824, Tel-Aviv University > Foerder Institute for Economic Research.
    18. Ran Spiegler, 2006. "The Market for Quacks," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 1113-1131.
    19. Andrew Ellis & Michele Piccione, 2017. "Correlation Misperception in Choice," American Economic Review, American Economic Association, vol. 107(4), pages 1264-1292, April.
    20. Ignacio Esponda & Demian Pouzo, 2014. "Berk-Nash Equilibrium: A Framework for Modeling Agents with Misspecified Models," Papers 1411.1152, arXiv.org, revised May 2016.
    21. Ignacio Esponda & Demian Pouzo, 2015. "Equilibrium in Misspecified Markov Decision Processes," Papers 1502.06901, arXiv.org, revised May 2016.
    22. repec:but:manage:v:4:y:2014:i:1:p:151-163 is not listed on IDEAS
    23. repec:oup:restud:v:84:y:2017:i:4:p:1818-1841. is not listed on IDEAS

    More about this item

    JEL classification:

    • D4 - Microeconomics - - Market Structure, Pricing, and Design
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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