Doubts and Equilibria

In real life strategic interactions, decision-makers are likely to entertain doubts about the degree of optimality of their play. To capture this feature of real choice-making, we present here a model based on the doubts felt by an agent about how well is playing a game. The doubts are coupled with (and mutually reinforced by) imperfect discrimination capacity, which we model here by means of similarity relations. We assume that each agent builds procedural preferences de ned on the space of expected payoffs-strategy frequencies attached to his current strategy. These preferences, together with an adaptive learning process lead to doubt-based selection dynamic systems. We introduce the concepts of Mixed Strategy Doubt Equilibria, Mixed Strategy Doubt-Full Equilibria and Mixed Strategy Doubtless Equilibria and show the theoretical and the empirical relevance of these concepts.

Approximate knowledge of rationality and correlated equilibria

We extend Aumann's [3] theorem deriving correlated equilibria as a consequence of common priors and common knowledge of rationality by explicitly allowing for non-rational behavior. We replace the assumption of common knowledge of rationality with a substantially weaker notion, joint p-belief of rationality, where agents believe the other agents are rational with probabilities p = (pi)i2I or more. We show that behavior in this case constitutes a constrained correlated equilibrium of a doubled game satisfying certain p-belief constraints and characterize the topological structure of the resulting set of p-rational outcomes. We establish continuity in the parameters p and show that, for p su ciently close to one, the p-rational outcomes are close to the correlated equilibria and, with high probability, supported on strategies that survive the iterated elimination of strictly dominated strategies. Finally, we extend Aumann and Dreze's [4] theorem on rational expectations of interim types to the broader p-rational belief systems, and also discuss the case of non-common priors.

Endogenous Timing in Pollution Control: Stackelberg versus Cournot-Nash Equilibria

27 p.

A Behavioral Foundation for Models of Evolutionary Drift

Binmore and Samuelson (1999) have shown that perturbations (drift) are crucial to study the stability properties of Nash equilibria. We contribute to this literature by providing a behavioural foundation for models of evolutionary drift. In particular, this article introduces a microeconomic model of drift based on the similarity theory developed by Tversky (1977), Kahneman and Tversky (1979) and Rubinstein (1988),(1998). An innovation with respect to those works is that we deal with similarity relations that are derived from the perception that each agent has about how well he is playing the game. In addition, the similarity relations are adapted to a dynamic setting. We obtain different models of drift depending on how we model the agent´s assessment of his behaviour in the game. The examples of the ultimatum game and the chain-store game are used to show the conditions for each model to stabilize elements in the component of Nash equilibria that are not subgame- perfect. It is also shown how some models approximate the laboratory data about those games while others match the data.

The Supercore for Normal Form Games

We study the supercore of a system derived from a normal form game. For the case of a finite game with pure strategies, we define a sequence of games and show that the supercore of that system coincides with the set of Nash equilibrium strategy profiles of the last game in the sequence. This result is illustrated with the characterization of the supercore for the n-person prisoners’ dilemma. With regard to the mixed extension of a normal form game, we show that the set of Nash equilibrium profiles coincides with the supercore for games with a finite number of Nash equilibria. For games with an infinite number of Nash equilibria this need not be no longer the case. Yet, it is not difficult to find a binary relation which guarantees the coincidence of these two sets.

A Model of Evolutionay Drift

Drift appears to be crucial to study the stability properties of Nash equilibria in a component specifying different out-of-equilibrium behaviour. We propose a new microeconomic model of drift to be added to the learning process by which agents find their way to equilibrium. A key feature of the model is the sensitivity of the noisy agent to the proportion of agents in his player population playing the same strategy as his current one. We show that, 1. Perturbed Payoff-Positive and PayoffMonotone selection dynamics are capable of stabilizing pure non strict Nash equilibria in either singleton or nonsingleton component of equilibria; 2. The model is relevant to understand the role of drift in the behaviour observed in the laboratory for the Ultimatum Game and for predicting outcomes that can be experimentally tested. Hence, the selection dynamics model perturbed with the proposed drift may be seen as well as a new learning tool to understand observed behaviour.

Optimal Fiscal Policy with Rationing in the Labor Market

Published as an article in: Topics in Macroeconomics, 2005, vol. 5, issue 1, article 17.

Switching Regimes in the Term Structure of Interest Rates During U.S. Post-War: A case for the Lucas proof equilibrium?

Published as an article in: Studies in Nonlinear Dynamics & Econometrics, 2004, vol. 8, issue 1, pages 5.

Resale in Auctions with Financial Constraints

This paper analyzes auctions where bidders face nancial constraints that may force them to resell part of the property of the good (or subcontract part of a project) at a resale market. First we show that the ine¢ cient speculative equilibria of second- price auctions (Garratt and Tröger, 2006) generalizes to situations with partial resale where only the high value bidder is nancially constrained. However, when all players face nancial constraints the ine¢ cient speculative equilibria disappear. Therefore, for auctioning big facilities or contracts where all bidders are nancially constrained and there is a resale market, the second price auction remains a simple and appropriate mechanism to achieve an e¢ cient allocation.

Games with perceptions

We assume that 2 x 2 matrix games are publicly known and that players perceive a dichotomous characteristic on their opponents which defines two types for each player. In turn, each type has beliefs concerning her opponent's types, and payoffs are assumed to be type-independent. We analyze whether the mere possibility of different types playing different strategies generates discriminatory equilibria. Given a specific information structure we find that in equilibrium a player discriminates between her types if and only if her opponent does so. We also find that for dominant solvable 2x2 games no discriminatory equilibrium exists, while under different conditions of concordance between players' beliefs discrimination appears for coordination and for competitive games. A complete characterization of the set of Bayesian equilibria is provided.