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Valuation equilibrium

Jehiel, P; Samet, D; (2007) Valuation equilibrium. Theoretical Economics , 2 (2) 163 -185. Green open access

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Abstract

We introduce a new solution concept for games in extensive form with perfect information, valuation equilibrium, which is based on a partition of each player's moves into similarity classes. A valuation of a player'is a real-valued function on the set of her similarity classes. In this equilibrium each player's strategy is optimal in the sense that at each of her nodes, a player chooses a move that belongs to a class with maximum valuation. The valuation of each player is consistent with the strategy profile in the sense that the valuation of a similarity class is the player's expected payoff, given that the path (induced by the strategy profile) intersects the similarity class. The solution concept is applied to decision problems and multi-player extensive form games. It is contrasted with existing solution concepts. The valuation approach is next applied to stopping games, in which non-terminal moves form a single similarity class, and we note that the behaviors obtained echo some biases observed experimentally. Finally, we tentatively suggest a way of endogenizing the similarity partitions in which moves are categorized according to how well they perform relative to the expected equilibrium value, interpreted as the aspiration level.

Type: Article
Title: Valuation equilibrium
Open access status: An open access version is available from UCL Discovery
Publisher version: http://econtheory.org/ojs/index.php/te/article/vie...
Language: English
Additional information: Copyright c © 2007 Philippe Jehiel and Dov Samet. Licensed under the Creative Commons Attribution- NonCommercial License 2.5 . Available at http://econtheory.org
UCL classification: UCL
UCL > Provost and Vice Provost Offices
UCL > Provost and Vice Provost Offices > UCL SLASH
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS
UCL > Provost and Vice Provost Offices > UCL SLASH > Faculty of S&HS > Dept of Economics
URI: https://discovery.ucl.ac.uk/id/eprint/45887
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