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Analogy based expectation equilibrium

Jehiel, P.; (2001) Analogy based expectation equilibrium. (ELSE Working Papers 11). ESRC Centre for Economic Learning and Social Evolution: London, UK. Green open access

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It is assumed that players bundle nodes in which other players must move into analogy classes, and players only have expectations about the average behavior in every class. A solution concept is proposed for multi-stage games with perfect information: at every node players choose best-responses to their analogy-based expectations, and expectations are correct on average over those various nodes pooled together into the same analogy classes. The approach is applied to a variety of games. It is shown that a player may benefit from having a coarse analogy partitioning. And for simple analogy partitioning, (1) initial cooperation followed by an end opportunistic behavior may emerge in the Þnitely repeated prisoner's dilemma (or in the centipede game), (2) an agreement need not be reached immediately in bargaining games with complete information.

Type: Working / discussion paper
Title: Analogy based expectation equilibrium
Open access status: An open access version is available from UCL Discovery
Publisher version: http://else.econ.ucl.ac.uk/newweb/papers.php#2001
Language: English
Additional information: Please see http://eprints.ucl.ac.uk/12632/ for the version published in the Journal of Economic Theory
Keywords: JEL classification: C72, D81. Game theory, bounded rationality, reasoning by analogy
UCL classification: UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/14658
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