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On Myopic Equilibria in Dynamic Games with Endogenous Discounting

  • Wilko Bolt
  • Alexander Tieman

We derive a stationary equilibrium in a two-player multi-stage game with endogenous discounting. At each stage, the probability to reach the next stage is determined by the players' current actions. We assume that the players are myopic in the sense that they take the future strategies of their opponents as given. We find that the stationary myopic equilibrium of the infinite-horizon multi-stage game corresponds to the infinite repetition of a Nash equilibrium of an induced (one-shot) limit game. Interestingly, this stationary myopic equilibrium is singled out when studying limiting equilibria of the associated multi-stage game with a finite horizon.

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File URL: http://www.dnb.nl/binaries/Working%20Paper%2070_tcm46-146727.pdf
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Paper provided by Netherlands Central Bank, Research Department in its series DNB Working Papers with number 070.

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Date of creation: Dec 2005
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Handle: RePEc:dnb:dnbwpp:070
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Web page: http://www.dnb.nl/en/

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  1. W. Bolt & A. F. Tieman, 2001. "Banking competition, risk, and regulation," WO Research Memoranda (discontinued) 647, Netherlands Central Bank, Research Department.
  2. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  3. Martin J. Osborne & Ariel Rubinstein, 2005. "Bargaining and Markets," Levine's Bibliography 666156000000000515, UCLA Department of Economics.
  4. Hausken, Kjell, 2005. "The battle of the sexes when the future is important," Economics Letters, Elsevier, vol. 87(1), pages 89-93, April.
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