Bounded Memory, Inertia, Sampling and Weighting Model for Market Entry Games

Wei Chen, Shu-Yu Liu, Chih-Han Chen and Yi-Shan Lee
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Wei Chen: Department of Economics, National Taiwan University, No.21 Hsu-Chow Rd., Taipei, Taiwan
Shu-Yu Liu: Department of Economics, National Taiwan University, No.21 Hsu-Chow Rd., Taipei, Taiwan
Chih-Han Chen: Department of Economics, National Taiwan University, No.21 Hsu-Chow Rd., Taipei, Taiwan
Yi-Shan Lee: Department of Economics, National Taiwan University, No.21 Hsu-Chow Rd., Taipei, Taiwan

Games, 2011, vol. 2, issue 1, 1-13

Abstract: This paper describes the “Bounded Memory, Inertia, Sampling and Weighting” (BI-SAW) model, which won the http://sites.google.com/site/gpredcomp/Market Entry Prediction Competition in 2010. The BI-SAW model refines the I-SAW Model (Erev et al. [1]) by adding the assumption of limited memory span. In particular, we assume when players draw a small sample to weight against the average payoff of all past experience, they can only recall 6 trials of past experience. On the other hand, we keep all other key features of the I-SAW model: (1) Reliance on a small sample of past experiences, (2) Strong inertia and recency effects, and (3) Surprise triggers change. We estimate this model using the first set of experimental results run by the competition organizers, and use it to predict results of a second set of similar experiments later ran by the organizers. We find significant improvement in out-of-sample predictability (against the I-SAW model) in terms of smaller mean normalized MSD, and such result is robust to resampling the predicted game set and reversing the role of the sets of experimental results. Our model’s performance is the best among all the participants.

Keywords: learning; market entry game; prediction competition (search for similar items in EconPapers)
JEL-codes: C C7 C70 C71 C72 C73 (search for similar items in EconPapers)
Date: 2011
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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