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Nash Equilibrium When Players Account for the Complexity of their Forecasts

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  • Eliaz, K.

Abstract

Nash equilibrium is often interpreted as a steady state in which each player holds the correct expectations about the other players` behavior and acts rationally. This paper investigates the robustness of this interpretation when players` preferences are affected by their forecasts about the other players. In particular, I analyze the case of lexicographic preferences in which the simplicity of forecasts is secondary to material payoffs.

Suggested Citation

  • Eliaz, K., 2001. "Nash Equilibrium When Players Account for the Complexity of their Forecasts," Papers 2001-6, Tel Aviv.
  • Handle: RePEc:fth:teavfo:2001-6
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    References listed on IDEAS

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    1. Rubinstein, Ariel, 1991. "Comments on the Interpretation of Game Theory," Econometrica, Econometric Society, vol. 59(4), pages 909-924, July.
    2. Piccione, Michele, 1992. "Finite automata equilibria with discounting," Journal of Economic Theory, Elsevier, vol. 56(1), pages 180-193, February.
    3. Aumann, Robert J, 1987. "Correlated Equilibrium as an Expression of Bayesian Rationality," Econometrica, Econometric Society, vol. 55(1), pages 1-18, January.
    4. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262650401, January.
    5. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, vol. 54(3), pages 533-554, May.
    6. Abreu, Dilip & Rubinstein, Ariel, 1988. "The Structure of Nash Equilibrium in Repeated Games with Finite Automata," Econometrica, Econometric Society, vol. 56(6), pages 1259-1281, November.
    7. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
    8. Eliaz, K., 2001. "An Equilibrium for Games Played by Imperfect Organizations," Papers 2001-12, Tel Aviv.
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    Citations

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    Cited by:

    1. Theodoros M. Diasakos, 2008. "Complexity and Bounded Rationality in Individual Decision Problems," Carlo Alberto Notebooks 90, Collegio Carlo Alberto.
    2. Ran Spiegler, 2016. "Bayesian Networks and Boundedly Rational Expectations," The Quarterly Journal of Economics, Oxford University Press, vol. 131(3), pages 1243-1290.
    3. Mengel, Friederike, 2012. "Learning across games," Games and Economic Behavior, Elsevier, vol. 74(2), pages 601-619.
    4. Tsakas, Elias, 2014. "Rational belief hierarchies," Journal of Mathematical Economics, Elsevier, vol. 51(C), pages 121-127.
    5. Yilmaz Kocer, 2010. "Endogenous Learning with Bounded Memory," Working Papers 1290, Princeton University, Department of Economics, Econometric Research Program..
    6. Jehiel, Philippe, 2005. "Analogy-based expectation equilibrium," Journal of Economic Theory, Elsevier, vol. 123(2), pages 81-104, August.
    7. Spiegler, Ran, 2005. "Testing threats in repeated games," Journal of Economic Theory, Elsevier, vol. 121(2), pages 214-235, April.
    8. Spiegler, Ran, 2004. "Simplicity of beliefs and delay tactics in a concession game," Games and Economic Behavior, Elsevier, vol. 47(1), pages 200-220, April.
    9. Azrieli, Yaron, 2009. "Categorizing others in a large game," Games and Economic Behavior, Elsevier, vol. 67(2), pages 351-362, November.
    10. Tsakas Elias, 2012. "Rational belief hierarchies," Research Memorandum 004, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    11. Azrieli, Yaron, 2007. "Thinking categorically about others: A conjectural equilibrium approach," MPRA Paper 3843, University Library of Munich, Germany.
    12. Maenner, Eliot, 2008. "Adaptation and complexity in repeated games," Games and Economic Behavior, Elsevier, vol. 63(1), pages 166-187, May.

    More about this item

    Keywords

    GAMES ; FORECASTS ; EXPECTATIONS;

    JEL classification:

    • O21 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Planning Models; Planning Policy
    • O22 - Economic Development, Innovation, Technological Change, and Growth - - Development Planning and Policy - - - Project Analysis

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