Belief-based equilibrium

Alvaro Sandroni; Rann Smorodinsky

doi:10.1016/S0899-8256(03)00152-0

Belief-based equilibrium

Alvaro Sandroni^*, Rann Smorodinsky

^*Corresponding author for this work

Managerial Economics, Decision Sciences and Operations

Research output: Contribution to journal › Article › peer-review

6 Scopus citations

Abstract

We introduce a new solution concept for short-sighted players engaging in a repeated interaction: a Belief-based equilibrium (BBE). In a BBE, players optimize myopically given their beliefs which are not necessarily correct, but are not contradicted by the data. We show that, if the stage game has a unique correlated equilibrium then the play of a BBE resembles a Nash equilibrium play. However, a BBE may not be a Nash equilibrium. In particular, in a BBE players may play deterministically when the only Nash equilibrium is in mixed strategies.

Original language	English (US)
Pages (from-to)	157-171
Number of pages	15
Journal	Games and Economic Behavior
Volume	47
Issue number	1
DOIs	https://doi.org/10.1016/S0899-8256(03)00152-0
State	Published - Apr 2004

Keywords

Calibration
Equilibrium
Learning
Rationality

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/S0899-8256(03)00152-0

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abstract = "We introduce a new solution concept for short-sighted players engaging in a repeated interaction: a Belief-based equilibrium (BBE). In a BBE, players optimize myopically given their beliefs which are not necessarily correct, but are not contradicted by the data. We show that, if the stage game has a unique correlated equilibrium then the play of a BBE resembles a Nash equilibrium play. However, a BBE may not be a Nash equilibrium. In particular, in a BBE players may play deterministically when the only Nash equilibrium is in mixed strategies.",

keywords = "Calibration, Equilibrium, Learning, Rationality",

author = "Alvaro Sandroni and Rann Smorodinsky",

note = "Funding Information: We thank Uri Gneezy, Martin Dufwenberg, participants in several workshops, and an anonymous referee for valuable comments. Financial support from the NSF Grant SBR 9730385, BSF Grant 97-00113/1, and the Bergmann Memorial Research Grant is gratefully acknowledged. Sandroni also thanks financial support from the National Science Foundation Grant SES 0109650. All errors are ours.",

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AU - Sandroni, Alvaro

AU - Smorodinsky, Rann

N1 - Funding Information: We thank Uri Gneezy, Martin Dufwenberg, participants in several workshops, and an anonymous referee for valuable comments. Financial support from the NSF Grant SBR 9730385, BSF Grant 97-00113/1, and the Bergmann Memorial Research Grant is gratefully acknowledged. Sandroni also thanks financial support from the National Science Foundation Grant SES 0109650. All errors are ours.

PY - 2004/4

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N2 - We introduce a new solution concept for short-sighted players engaging in a repeated interaction: a Belief-based equilibrium (BBE). In a BBE, players optimize myopically given their beliefs which are not necessarily correct, but are not contradicted by the data. We show that, if the stage game has a unique correlated equilibrium then the play of a BBE resembles a Nash equilibrium play. However, a BBE may not be a Nash equilibrium. In particular, in a BBE players may play deterministically when the only Nash equilibrium is in mixed strategies.

AB - We introduce a new solution concept for short-sighted players engaging in a repeated interaction: a Belief-based equilibrium (BBE). In a BBE, players optimize myopically given their beliefs which are not necessarily correct, but are not contradicted by the data. We show that, if the stage game has a unique correlated equilibrium then the play of a BBE resembles a Nash equilibrium play. However, a BBE may not be a Nash equilibrium. In particular, in a BBE players may play deterministically when the only Nash equilibrium is in mixed strategies.

KW - Calibration

KW - Equilibrium

KW - Learning

KW - Rationality

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DO - 10.1016/S0899-8256(03)00152-0

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VL - 47

SP - 157

EP - 171

JO - Games and Economic Behavior

JF - Games and Economic Behavior

IS - 1

ER -

Belief-based equilibrium

Abstract

Keywords

ASJC Scopus subject areas

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