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Learning by (limited) forward looking players

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  • Mengel, Friederike
Abstract
We present a model of adaptive economic agents who are k periods forward looking. Agents in our model are randomly matched to interact in finitely repeated games. They form beliefs by learning from past behavior of others and then best respond to these beliefs looking k periods ahead. We establish almost sure convergence of our stochastic process and characterize absorbing sets. These can be very different from the predictions in both the fully rational model and the adaptive, but myopic case. In particular we find that also Non-Nash outcomes can be sustained whenever they satisfy a “local” efficiency condition. We then characterize stochastically stable states in a class of 2×2 games and show that under certain conditions the efficient action in Prisoner's Dilemma games and coordination games can be singled out as uniquely stochastically stable. We show that our results are consistent with typical patterns observed in experiments on finitely repeated Prisoner's Dilemma games and in particular can explain what is commonly called the “endgame effect” and the “restart effect”. Finally, if populations are composed of some myopic and some forward looking agents, parameter constellations exist such that either might obtain higher average payoffs.

Suggested Citation

  • Mengel, Friederike, 2014. "Learning by (limited) forward looking players," Journal of Economic Behavior & Organization, Elsevier, vol. 108(C), pages 59-77.
    • Handle: RePEc:eee:jeborg:v:108:y:2014:i:c:p:59-77
    DOI: 10.1016/j.jebo.2014.08.001
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    4. Marco Mantovani, 2015. "Limited backward induction: foresight and behavior in sequential games," Working Papers 289, University of Milano-Bicocca, Department of Economics, revised Jan 2015.
    5. Aidas Masiliunas, 2016. "Inefficient Lock-in with Sophisticated and Myopic Players," AMSE Working Papers 1615, Aix-Marseille School of Economics, France, revised 19 Apr 2016.
    6. Leonidov, Andrey & Vasilyeva, Ekaterina, 2022. "Strategic stiffening/cooling in the Ising game," Chaos, Solitons & Fractals, Elsevier, vol. 160(C).
    7. Charness, Gary & Feri, Francesco & Meléndez-Jiménez, Miguel A. & Sutter, Matthias, 2012. "Equilibrium Selection in Experimental Games on Networks," University of California at Santa Barbara, Economics Working Paper Series qt51v6w9hd, Department of Economics, UC Santa Barbara.
    8. Philippe Jehiel, 2022. "Analogy-Based Expectation Equilibrium and Related Concepts:Theory, Applications, and Beyond," Working Papers halshs-03735680, HAL.
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    10. Norton, Douglas A., 2015. "Killing the (coordination) moment: How ambiguity eliminates the restart effect in voluntary contribution mechanism experiments," Economics Letters, Elsevier, vol. 126(C), pages 1-5.
    11. Shunji Oniki & Haftu Etsay & Melaku Berhe & Teklay Negash, 2020. "Improving Cooperation among Farmers for Communal Land Conservation in Ethiopia: A Public Goods Experiment," Sustainability, MDPI, vol. 12(21), pages 1-16, November.
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    16. Anujit Chakraborty, 2022. "Motives Behind Cooperation in Finitely Repeated Prisoner's Dilemma," Working Papers 353, University of California, Davis, Department of Economics.
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    19. Chakraborty, Anujit, 2023. "Motives behind cooperation in finitely repeated prisoner's dilemma," Games and Economic Behavior, Elsevier, vol. 141(C), pages 105-132.

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    More about this item

    Keywords

    Game theory; Learning; Forward-looking agents; Prisoner's Dilemma experiments;
    All these keywords.

    JEL classification:

    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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