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Learning in Games with Unstable Equilibria

We investigate games whose Nash equilibria are mixed and are unstable under fictitious play-like learning processes. We show that when players learn using weighted stochastic fictitious play and so place greater weight on more recent experience that the time average of play often converges in these “unstable” games, even while mixed strategies and beliefs continue to cycle. This time average is related to the best response cycle first identified by Shapley (1964). For many games, the time average is close enough to Nash equilibrium to create the appearance of convergence to equilibrium. We discuss how these theoretical results may help to explain data from recent experimental studies of price dispersion.

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Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 135.

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Length: 36
Date of creation: Jul 2005
Date of revision:
Handle: RePEc:edn:esedps:135
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