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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: http://mpra.ub.uni-muenchen.de/23854/1/MPRA_paper_23854.pdf
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File URL: http://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. Luca Anderlini & Roger Lagunoff, 2000. "Communication in Dynastic Repeated Games: 'Whitewashes' and 'Coverups'," Working Papers gueconwpa~01-01-03, Georgetown University, Department of Economics, revised 01 Jul 2001.
  2. Aumann, Robert J. & Sorin, Sylvain, 1989. "Cooperation and bounded recall," Games and Economic Behavior, Elsevier, vol. 1(1), pages 5-39, March.
  3. Carlos Alós-Ferrer & Fei Shi, 2012. "Imitation with asymmetric memory," Economic Theory, Springer, vol. 49(1), pages 193-215, January.
  4. Harold L. Cole & Narayana R. Kocherlakota, 2001. "Finite memory and imperfect monitoring," Staff Report 287, Federal Reserve Bank of Minneapolis.
  5. Barton L. Lipman, 1993. "Information Processing and Bounded Rationality: A Survey," Working Papers 872, Queen's University, Department of Economics.
  6. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
  7. Mamoru Kaneko & J. Kline, 2013. "Partial memories, inductively derived views, and their interactions with behavior," Economic Theory, Springer, vol. 53(1), pages 27-59, May.
  8. 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.
  9. Marco Battaglini, 2005. "Long-Term Contracting with Markovian Consumers," American Economic Review, American Economic Association, vol. 95(3), pages 637-658, June.
  10. David A. Miller & Kareen Rozen, 2011. "Optimally Empty Promises and Endogenous Supervision," Cowles Foundation Discussion Papers 1823, Cowles Foundation for Research in Economics, Yale University, revised Jun 2012.
  11. Neyman, Abraham, 1985. "Bounded complexity justifies cooperation in the finitely repeated prisoners' dilemma," Economics Letters, Elsevier, vol. 19(3), pages 227-229.
  12. Olivier Compte & Andrew Postlewaite, 2007. "Effecting Cooperation," PIER Working Paper Archive 09-019, Penn Institute for Economic Research, Department of Economics, University of Pennsylvania, revised 29 May 2009.
  13. Sendhil Mullainathan, 2002. "A Memory-Based Model Of Bounded Rationality," The Quarterly Journal of Economics, MIT Press, vol. 117(3), pages 735-774, August.
  14. Lehrer, Ehud, 1988. "Repeated games with stationary bounded recall strategies," Journal of Economic Theory, Elsevier, vol. 46(1), pages 130-144, October.
  15. Ehud Kalai & William Stanford, 1986. "Finite Rationality and Interpersonal Complexity in Repeated Games," Discussion Papers 679, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  16. Paul Grauwe, 2011. "Animal spirits and monetary policy," Economic Theory, Springer, vol. 47(2), pages 423-457, June.
  17. Sandra GØth & Sven Ludwig, 2000. "How helpful is a long memory on financial markets?," Economic Theory, Springer, vol. 16(1), pages 107-134.
  18. Julian Romero, 2011. "Finite Automata in Undiscounted Repeated Games with Private Monitoring," Purdue University Economics Working Papers 1260, Purdue University, Department of Economics.
  19. Kalai, Ehud & Solan, Eilon, 2003. "Randomization and simplification in dynamic decision-making," Journal of Economic Theory, Elsevier, vol. 111(2), pages 251-264, August.
  20. Monte, Daniel, 2014. "Learning with bounded memory in games," Games and Economic Behavior, Elsevier, vol. 87(C), pages 204-223.
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