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A simple case of rationality of escalation

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  • Pierre Lescanne

    () (LIP - Laboratoire de l'Informatique du Parallélisme - ENS Lyon - École normale supérieure - Lyon - UCBL - Université Claude Bernard Lyon 1 - Université de Lyon - Inria - Institut National de Recherche en Informatique et en Automatique - Université de Lyon - CNRS - Centre National de la Recherche Scientifique)

Abstract

Escalation is the fact that in a game (for instance an auction), the agents play forever. It is not necessary to consider complex examples to establish its rationality. In particular, the $0,1$-game is an extremely simple infinite game in which escalation arises naturally and rationally. In some sense, it can be considered as the paradigm of escalation. Through an example of economic games, we show the benefit economics can take of coinduction.

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  • Pierre Lescanne, 2013. "A simple case of rationality of escalation," Post-Print ensl-00832490, HAL.
  • Handle: RePEc:hal:journl:ensl-00832490
    Note: View the original document on HAL open archive server: https://hal-ens-lyon.archives-ouvertes.fr/ensl-00832490
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    References listed on IDEAS

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    1. Barry O'neill, 1986. "International Escalation and the Dollar Auction," Journal of Conflict Resolution, Peace Science Society (International), vol. 30(1), pages 33-50, March.
    2. Ariel Rubinstein, 2006. "Lecture Notes in Microeconomic Theory," Online economics textbooks, SUNY-Oswego, Department of Economics, number gradmicro1.
    3. Martin Shubik, 1971. "The Dollar Auction game: a paradox in noncooperative behavior and escalation," Journal of Conflict Resolution, Peace Science Society (International), vol. 15(1), pages 109-111, March.
    4. Abramsky, Samson & Winschel, Viktor, 2012. "Coalgebraic Analysis of Subgame-perfect Equilibria in Infinite Games without Discounting," Working Papers 12-17, University of Mannheim, Department of Economics.
    5. Jean-Philippe Bouchaud, 2008. "Economics need a scientific revolution," Papers 0810.5306, arXiv.org.
    6. David Colander, 2005. "The future of economics: the appropriately educated in pursuit of the knowable," Cambridge Journal of Economics, Oxford University Press, vol. 29(6), pages 927-941, November.
    7. Aumann, Robert J., 1995. "Backward induction and common knowledge of rationality," Games and Economic Behavior, Elsevier, vol. 8(1), pages 6-19.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    economic game; infinite game; sequential game; crash; escalation; speculative bubble; coinduction; auction;

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