Belief-based equilibrium

Alvaro Sandroni*, Rann Smorodinsky

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-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 languageEnglish (US)
Pages (from-to)157-171
Number of pages15
JournalGames and Economic Behavior
Volume47
Issue number1
DOIs
StatePublished - Apr 2004

Keywords

  • Calibration
  • Equilibrium
  • Learning
  • Rationality

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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