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The Strategies Behind Their Actions: A Method To Infer Repeated-Game Strategies And An Application To Buyer Behavior

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  • Jim Engle-Warnick
  • Bradley Ruffle

Abstract

We introduce a Bayesian method to infer repeted-game strategies in the form of if-then statements that best describe individuals' observed actions. We apply this method to buyer behavior in posted-offer market experiments. While the strategies of one-quarter of the buyers in our experiments correspond to the game-theoretic prediction of passive price-taking, for three-quarters of the buyers we infer repeated-game strategies that condition on time, price, and combinations of time and price. Our analysis fills a gap in a literature that studies the convergence of pricing behavior in posted-offer markets but has not addressed the market as a repeated game. We propose that strategy inference should at least complement existing methods of statistical inference on observed strategic behavior.

Suggested Citation

  • Jim Engle-Warnick & Bradley Ruffle, 2006. "The Strategies Behind Their Actions: A Method To Infer Repeated-Game Strategies And An Application To Buyer Behavior," Departmental Working Papers 2005-04, McGill University, Department of Economics.
    • Handle: RePEc:mcl:mclwop:2005-04
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    References listed on IDEAS

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    Cited by:

    1. Bradley J. Ruffle, 2005. "Buyer Countervailing Power: A Survey of Experimental Evidence," Working Papers 0512, Ben-Gurion University of the Negev, Department of Economics.
    2. Cabral, Luis & Ozbay, Erkut Y. & Schotter, Andrew, 2014. "Intrinsic and instrumental reciprocity: An experimental study," Games and Economic Behavior, Elsevier, vol. 87(C), pages 100-121.
    3. Engle-Warnick, Jim & Slonim, Robert L., 2004. "The evolution of strategies in a repeated trust game," Journal of Economic Behavior & Organization, Elsevier, vol. 55(4), pages 553-573, December.
    4. Todd Kaplan & Bradley Ruffle, 2004. "It's My Turn ... Please, After You: An Experimental Study of Cooperation and Social Conventions," Experimental 0410001, University Library of Munich, Germany.
    5. Engle-Warnick, Jim, 2003. "Inferring strategies from observed actions: a nonparametric, binary tree classification approach," Journal of Economic Dynamics and Control, Elsevier, vol. 27(11-12), pages 2151-2170, September.

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    More about this item

    JEL classification:

    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D42 - Microeconomics - - Market Structure, Pricing, and Design - - - Monopoly

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