Biased-Belief Equilibrium

Yuval Heller and Eyal Winter ()

American Economic Journal: Microeconomics, 2020, vol. 12, issue 2, 1-40

Abstract: We investigate how distorted, yet structured, beliefs can persist in strategic situations. Specifically, we study two-player games in which each player is endowed with a biased-belief function that represents the discrepancy between a player's beliefs about the opponent's strategy and the actual strategy. Our equilibrium condition requires that (i) each player choose a best-response strategy to his distorted belief about the opponent's strategy, and (ii) the distortion functions form best responses to one another. We obtain sharp predictions and novel insights into the set of stable outcomes and their supporting stable biases in various classes of games.

JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2020
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.aeaweb.org/doi/10.1257/mic.20170400 (application/pdf)
https://www.aeaweb.org/doi/10.1257/mic.20170400.appx (application/pdf)
https://www.aeaweb.org/doi/10.1257/mic.20170400.ds (application/zip)
Access to full text is restricted to AEA members and institutional subscribers.

Related works:
Working Paper: Biased-Belief Equilibrium (2020)
Working Paper: Biased-Belief Equilibrium (2018)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:aea:aejmic:v:12:y:2020:i:2:p:1-40

Ordering information: This journal article can be ordered from
https://www.aeaweb.org/journals/subscriptions

DOI: 10.1257/mic.20170400

Access Statistics for this article

American Economic Journal: Microeconomics is currently edited by Johannes Hörner

More articles in American Economic Journal: Microeconomics from American Economic Association Contact information at EDIRC.
Bibliographic data for series maintained by Michael P. Albert ().