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Bayesian equilibrium by iterative conjectures: a theory of games with players forming conjectures iteratively starting with first order uninformative conjectures

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  • Teng, Jimmy

Abstract

This paper introduces a new game theoretic equilibrium, Bayesian equilibrium by iterative conjectures (BEIC). It requires agents to make predictions, starting from first order uninformative predictive distribution functions (or conjectures) and keep updating with statistical decision theoretic and game theoretic reasoning until a convergence of conjectures is achieved. In a BEIC, rationality is achieved for strategies and conjectures. The BEIC approach is capable of analyzing a larger set of games than current Nash Equilibrium based games theory, including games with inaccurate observations, games with unstable equilibrium and games with double or multiple sided incomplete information games. On the other hand, for the set of games analyzed by the current games theory, it generates far lesser equilibriums and normally generates only a unique equilibrium. It also resolves inconsistencies in equilibrium results by different solution concepts in current games theory.

Suggested Citation

  • Teng, Jimmy, 2011. "Bayesian equilibrium by iterative conjectures: a theory of games with players forming conjectures iteratively starting with first order uninformative conjectures," MPRA Paper 37969, University Library of Munich, Germany, revised 06 Apr 2012.
  • Handle: RePEc:pra:mprapa:37969
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    File URL: https://mpra.ub.uni-muenchen.de/37969/1/MPRA_paper_37969.pdf
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    References listed on IDEAS

    as
    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, March.
    2. Joseph B. Kadane & Patrick D. Larkey, 1982. "Subjective Probability and the Theory of Games," Management Science, INFORMS, vol. 28(2), pages 113-120, February.
    3. Joseph B. Kadane & Patrick D. Larkey, 1982. "Reply to Professor Harsanyi," Management Science, INFORMS, vol. 28(2), pages 124-124, February.
    4. John C. Harsanyi, 1982. "Rejoinder to Professors Kadane and Larkey," Management Science, INFORMS, vol. 28(2), pages 124-125, February.
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    More about this item

    Keywords

    new equilibrium concept; iterative conjectures; convergence; Bayesian decision theory; Schelling point;

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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