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)|
|Number of pages||15|
|Journal||Games and Economic Behavior|
|State||Published - Apr 2004|
ASJC Scopus subject areas
- Economics and Econometrics