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Learning in hidden Markov models with bounded memory

  • Monte, Daniel
  • Said, Maher

This paper explores the role of memory in decision making in dynamic environments. We examine the inference problem faced by an agent with bounded memory who receives a sequence of signals from a hidden Markov model. We show that the optimal symmetric memory rule may be deterministic. This result contrasts sharply with Hellman and Cover (1970) and Wilson (2004) and solves, for the context of a hidden Markov model, an open question posed by Kalai and Solan (2003).

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File URL: https://mpra.ub.uni-muenchen.de/23854/1/MPRA_paper_23854.pdf
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File URL: https://mpra.ub.uni-muenchen.de/47595/8/MPRA_paper_47595.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 23854.

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Date of creation: 23 Jun 2010
Date of revision: 23 Jun 2010
Handle: RePEc:pra:mprapa:23854
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  1. Lehrer, Ehud, 1988. "Repeated games with stationary bounded recall strategies," Journal of Economic Theory, Elsevier, vol. 46(1), pages 130-144, October.
  2. Barton L. Lipman, 1993. "Information Processing and Bounded Rationality: A Survey," Working Papers 872, Queen's University, Department of Economics.
  3. Monte, Daniel, 2014. "Learning with bounded memory in games," Games and Economic Behavior, Elsevier, vol. 87(C), pages 204-223.
  4. Luca Anderlini & Dino Gerardi & Roger Lagunoff, 2006. "A 'Super' Folk Theorem for Dynastic Repeated Games," Working Papers gueconwpa~06-06-01, Georgetown University, Department of Economics.
  5. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
  6. Ariel Rubinstein, 1997. "Finite automata play the repeated prisioners dilemma," Levine's Working Paper Archive 1639, David K. Levine.
  7. Luca Anderlini & Roger Lagunoff, 2005. "Communication in dynastic repeated games: ‘Whitewashes’ and ‘coverups’," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 26(2), pages 265-299, 08.
  8. Kalai, Ehud & Stanford, William, 1988. "Finite Rationality and Interpersonal Complexity in Repeated Games," Econometrica, Econometric Society, vol. 56(2), pages 397-410, March.
  9. Sendhil Mullainathan, 2002. "A Memory-Based Model of Bounded Rationality," The Quarterly Journal of Economics, Oxford University Press, vol. 117(3), pages 735-774.
  10. Marco Battaglini, 2003. "Long-Term Contracting with Markovian Consumers," Theory workshop papers 505798000000000048, UCLA Department of Economics.
  11. Kalai, Ehud & Solan, Eilon, 2003. "Randomization and simplification in dynamic decision-making," Journal of Economic Theory, Elsevier, vol. 111(2), pages 251-264, August.
  12. Paul Grauwe, 2011. "Animal spirits and monetary policy," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 47(2), pages 423-457, June.
  13. Olivier Compte & Andrew Postlewaite, 2010. "Plausible Cooperation,Third Version," PIER Working Paper Archive 13-008, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 01 Dec 2012.
  14. Cole, Harold L. & Kocherlakota, Narayana R., 2005. "Finite memory and imperfect monitoring," Games and Economic Behavior, Elsevier, vol. 53(1), pages 59-72, October.
  15. David A. Miller & Kareen Rozen, 2011. "Optimally Empty Promises and Endogenous Supervision," Levine's Working Paper Archive 786969000000000270, David K. Levine.
  16. Aumann, Robert J. & Sorin, Sylvain, 1989. "Cooperation and bounded recall," Games and Economic Behavior, Elsevier, vol. 1(1), pages 5-39, March.
  17. Carlos Alós-Ferrer & Fei Shi, 2012. "Imitation with asymmetric memory," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 49(1), pages 193-215, January.
  18. Sandra GØth & Sven Ludwig, 2000. "How helpful is a long memory on financial markets?," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 16(1), pages 107-134.
  19. Julian Romero, 2011. "Finite Automata in Undiscounted Repeated Games with Private Monitoring," Purdue University Economics Working Papers 1260, Purdue University, Department of Economics.
  20. Mamoru Kaneko & J. Kline, 2013. "Partial memories, inductively derived views, and their interactions with behavior," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 53(1), pages 27-59, May.
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