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

Funding

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.

Keywords

Calibration
Equilibrium
Learning
Rationality

ASJC Scopus subject areas

Finance
Economics and Econometrics

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10.1016/S0899-8256(03)00152-0

Cite this

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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.",

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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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JO - Games and Economic Behavior

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Belief-based equilibrium

Abstract

Funding

Keywords

ASJC Scopus subject areas

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