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Revisiting games of incomplete information with analogy-based expectations

Jehiel, P.; Koessler, F.; (2008) Revisiting games of incomplete information with analogy-based expectations. Games and Economic Behavior , 62 (2) pp. 533-557. 10.1016/j.geb.2007.06.006.

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Abstract

This paper studies the effects of analogy-based expectations in static two-player games of incomplete information. Players are assumed to be boundedly rational in the way they forecast their opponent's state-contingent strategy: they bundle states into analogy classes and play best-responses to their opponent's average strategy in those analogy classes. We provide general properties of analogy-based expectation equilibria and apply the model to a variety of well known games. We characterize conditions on the analogy partitions for successful coordination in coordination games under incomplete information [Rubinstein, A., 1989. The electronic mail game: Strategic behavior under ‘almost common knowledge’. Amer. Econ. Rev. 79, 385–391], we show how analogy grouping of the receiver may facilitate information transmission in Crawford and Sobel's cheap talk games [Crawford, V.P., Sobel, J., 1982. Strategic information transmission. Econometrica 50, 1431–1451], and we show how analogy grouping may give rise to betting in zero-sum betting games such as those studied to illustrate the no trade theorem.

Type: Article
Title: Revisiting games of incomplete information with analogy-based expectations
DOI: 10.1016/j.geb.2007.06.006
Publisher version: http://dx.doi.org/10.1016/j.geb.2007.06.006
Language: English
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of SandHS > Dept of Economics
URI: http://discovery.ucl.ac.uk/id/eprint/16680
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