IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper

Self-confirming Equilibrium and the Lucas Critique

  • Fudenberg, Drew
  • Levine, David K.

We examine the role of off-path “superstitions†in macro-economics, and show how a false belief about off-path play is the key element underlying both the Lucas Critique and the game-theoretic concept of self-confirming equilibrium. However, the impact of false beliefs in these two cases is different: In the Lucas case, a policy maker's incorrect beliefs about off-path play can lead to the adoption of mistaken policy innovation. However, the consequences of such an innovation provide evidence that the belief that motivated them was wrong. In contrast, play may never escape an undesirable self-confirming equilibrium, as the action implied by the mistaken belief does not generate data that contradicts it; escape from the self-confirming equilibrium requires that players do a sufficient amount of experimentation with off-path actions.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://dash.harvard.edu/bitstream/handle/1/4686412/Fudenberg_LucasCritique.pdf
Download Restriction: no

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4686412.

as
in new window

Length:
Date of creation: 2009
Date of revision:
Publication status: Published in Journal of Economic Theory
Handle: RePEc:hrv:faseco:4686412
Contact details of provider: Postal:
Littauer Center, Cambridge, MA 02138

Phone: 617-495-2144
Fax: 617-495-7730
Web page: http://www.economics.harvard.edu/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Ehud Kalai & Ehud Lehrer, 1990. "Rational Learning Leads to Nash Equilibrium," Discussion Papers 895, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Drew Fudenberg & David M. Kreps & David K. Levine, 1986. "On the Robustness of Equilibrium Refinements," UCLA Economics Working Papers 398, UCLA Department of Economics.
  3. E. Dekel & D. Fudenberg, 2010. "Rational Behavior with Payoff Uncertainty," Levine's Working Paper Archive 379, David K. Levine.
  4. Thomas J. Sargent & Noah Williams & Tao Zha, 2004. "Shocks and government beliefs: the rise and fall of American inflation," FRB Atlanta Working Paper 2004-22, Federal Reserve Bank of Atlanta.
  5. Alberto Alesina & George-Marios Angeletos, 2004. "Fairness and Redistribution," Levine's Bibliography 122247000000000283, UCLA Department of Economics.
  6. Noldeke Georg & Samuelson Larry, 1993. "An Evolutionary Analysis of Backward and Forward Induction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 425-454, July.
  7. Eddie Dekel & Drew Fudenberg & David K. Levine, 1999. "Payoff Information and Self-Confirming Equilibrium," Levine's Working Paper Archive 172, David K. Levine.
  8. Fudenberg, Drew & Levine, David K, 1993. "Steady State Learning and Nash Equilibrium," Econometrica, Econometric Society, vol. 61(3), pages 547-73, May.
  9. Fudenberg, Drew & Kreps, David M., 1995. "Learning in extensive-form games I. Self-confirming equilibria," Games and Economic Behavior, Elsevier, vol. 8(1), pages 20-55.
  10. Drew Fudenberg & David K. Levine, 1993. "Self-Confirming Equilibrium," Levine's Working Paper Archive 2147, David K. Levine.
  11. Kalai, E & Neme, A, 1992. "The Strength of a Little Perfection," International Journal of Game Theory, Springer;Game Theory Society, vol. 20(4), pages 335-55.
  12. Frank Hahn, 2010. "Exercises in Conjectural Equilibrium," Levine's Working Paper Archive 526, David K. Levine.
  13. In-Koo Cho & Noah Williams & Thomas J. Sargent, 2002. "Escaping Nash Inflation," Review of Economic Studies, Oxford University Press, vol. 69(1), pages 1-40.
  14. Dekel, Eddie & Fudenberg, Drew & Levine, David K., 2004. "Learning to play Bayesian games," Games and Economic Behavior, Elsevier, vol. 46(2), pages 282-303, February.
  15. Drew Fudenberg & David K Levine, 2005. "Superstition and Rational Learning," Levine's Working Paper Archive 618897000000000731, David K. Levine.
  16. William Poole & Robert H. Rasche, 2002. "Flation," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 1-6.
    • William Poole, 2002. "Flation," Speech 49, Federal Reserve Bank of St. Louis.
  17. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
  18. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
  19. Jean-Pascal Benassy, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," Review of Economic Studies, Oxford University Press, vol. 42(4), pages 503-523.
  20. Borgers Tilman, 1994. "Weak Dominance and Approximate Common Knowledge," Journal of Economic Theory, Elsevier, vol. 64(1), pages 265-276, October.
  21. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-91, June.
  22. Drew Fudenberg & David K. Levine, 1996. "Measuring Subject’s Losses in Experimental Games," Levine's Working Paper Archive 370, David K. Levine.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:hrv:faseco:4686412. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Office for Scholarly Communication)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.