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Learning and Hysteresis in a Dynamic Coordination Game

  • Rungcharoenkitkul, Phurichai

This paper introduces a dynamic coordination game with incomplete information defined by a state variable that evolves stochastically. Incomplete information enables us to use iterated dominance argument in order to resolve the indeterminacy issues. The key endogenous variable is the belief that each agent holds about the state of the world. We show that as agents update their heterogeneous beliefs through learning sequentially, they adjust their beliefs to justify the status quo. This effect induces equilibrium actions that support the status quo, a property we call hysteresis.

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File URL: http://mpra.ub.uni-muenchen.de/32992/1/MPRA_paper_32992.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 32992.

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Date of creation: 01 Jan 2006
Date of revision: 17 Aug 2011
Handle: RePEc:pra:mprapa:32992
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  1. Carlsson, H. & van Damme, E.E.C., 1993. "Global games and equilibrium selection," Other publications TiSEM 49a54f00-dcec-4fc1-9488-4, Tilburg University, School of Economics and Management.
  2. Caplin, A. & Leahy, J., 1992. "Business as Usual, Market Crashes and Wisdom After the Fact," Discussion Papers 1992_18, Columbia University, Department of Economics.
  3. Christophe Chamley, 1999. "Coordinating Regime Switches," The Quarterly Journal of Economics, MIT Press, vol. 114(3), pages 869-905, August.
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