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Learning, Information and Sorting in Market Entry Games: Theory and Evidence

  • John Duffy
  • Ed Hopkins

Previous data from experiments on market entry games, N-player games where each player faces a choice between entering a market and staying out, appear inconsistent with either mixed or pure Nash equilibria. Here we show that, in this class of game, learning theory predicts sorting, that is, in the long run, agents play a pure strategy equilibrium with some agents permanently in the market, and some permanently out. We conduct experiments with a larger number of repetitions than in previous work in order to test this prediction. We find that when subjects are given minimal information, only after close to 100 periods do subjects begin to approach equilibrium. In contrast, with full information, subjects learn to play a pure strategy equilibrium relatively quickly. However, the information which permits rapid convergence, revelation of the individual play of all opponents, is not predicted to have any effect by existing models of learning.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 506439000000000355.

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Date of creation: 11 Dec 2010
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Handle: RePEc:cla:levarc:506439000000000355
Contact details of provider: Web page: http://www.dklevine.com/

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  1. Ed Hopkins, 2001. "Two Competing Models of How People Learn in Games," Levine's Working Paper Archive 625018000000000226, David K. Levine.
  2. Drew Fudenberg & David K. Levine, 1996. "The Theory of Learning in Games," Levine's Working Paper Archive 624, David K. Levine.
  3. Sarin, Rajiv & Vahid, Farshid, 1999. "Payoff Assessments without Probabilities: A Simple Dynamic Model of Choice," Games and Economic Behavior, Elsevier, vol. 28(2), pages 294-309, August.
  4. McKelvey Richard D. & Palfrey Thomas R., 1995. "Quantal Response Equilibria for Normal Form Games," Games and Economic Behavior, Elsevier, vol. 10(1), pages 6-38, July.
  5. Camerer, Colin F. & Ho, Teck-Hua & Chong, Juin-Kuan, 2002. "Sophisticated Experience-Weighted Attraction Learning and Strategic Teaching in Repeated Games," Journal of Economic Theory, Elsevier, vol. 104(1), pages 137-188, May.
  6. Eyal Winter & Amnon Rapoport & Darryl A. Seale, 2000. "An experimental study of coordination and learning in iterated two-market entry games," Economic Theory, Springer, vol. 16(3), pages 661-687.
  7. Sundali, James A. & Rapoport, Amnon & Seale, Darryl A., 1995. "Coordination in Market Entry Games with Symmetric Players," Organizational Behavior and Human Decision Processes, Elsevier, vol. 64(2), pages 203-218, November.
  8. Amnon Rapoport & Darryl A. Seale & Ido Erev & James A. Sundali, 1998. "Equilibrium Play in Large Group Market Entry Games," Management Science, INFORMS, vol. 44(1), pages 119-141, January.
  9. Fernando Vega Redondo, 1996. "The evolution of walrasian behavior," Working Papers. Serie AD 1996-05, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).
  10. Christopher M. Anderson & Colin F. Camerer, 2000. "Experience-weighted attraction learning in sender-receiver signaling games," Economic Theory, Springer, vol. 16(3), pages 689-718.
  11. Ed Hopkins & Martin Posch, 2004. "Attainability of Boundary Points under Reinforcement Learning," ESE Discussion Papers 79, Edinburgh School of Economics, University of Edinburgh.
  12. Dan Lovallo & Colin Camerer, 1999. "Overconfidence and Excess Entry: An Experimental Approach," American Economic Review, American Economic Association, vol. 89(1), pages 306-318, March.
  13. Erev, Ido & Roth, Alvin E, 1998. "Predicting How People Play Games: Reinforcement Learning in Experimental Games with Unique, Mixed Strategy Equilibria," American Economic Review, American Economic Association, vol. 88(4), pages 848-81, September.
  14. Monderer, Dov & Shapley, Lloyd S., 1996. "Fictitious Play Property for Games with Identical Interests," Journal of Economic Theory, Elsevier, vol. 68(1), pages 258-265, January.
  15. Colin Camerer & Teck-Hua Ho, 1999. "Experience-weighted Attraction Learning in Normal Form Games," Econometrica, Econometric Society, vol. 67(4), pages 827-874, July.
  16. Rapoport, Amnon & Seale, Darryl A. & Winter, Eyal, 2002. "Coordination and Learning Behavior in Large Groups with Asymmetric Players," Games and Economic Behavior, Elsevier, vol. 39(1), pages 111-136, April.
  17. Darryl Seale & Amnon Rapoport, 2000. "Elicitation of Strategy Profiles in Large Group Coordination Games," Experimental Economics, Springer, vol. 3(2), pages 153-179, October.
  18. Benaim, Michel & Hirsch, Morris W., 1999. "Mixed Equilibria and Dynamical Systems Arising from Fictitious Play in Perturbed Games," Games and Economic Behavior, Elsevier, vol. 29(1-2), pages 36-72, October.
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