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Bounded memory and incomplete information

Benjamin Sperisen

Games and Economic Behavior, 2018, vol. 109, issue C, 382-400

Abstract: This paper studies incomplete information games where players observe only a summary statistic of the history, including reputation games as a special case. A recursive characterization of the equilibrium payoff set is derived for the case where time is observable, relating it to a self-generating set of tuples that capture equilibrium behavior and payoffs. With unobservable time, equilibria have a particularly simple interpretation as self-generating points. The tools are applied to a product choice game where the firm may be an “honest” commitment type and consumers have 1-period memory with imperfect monitoring, solving for the worst equilibrium payoff. The recursive algorithm shows that the observable-time game allows lower equilibrium payoffs due to non-stationary behavior.

Keywords: Bounded memory; Incomplete information; Reputation; Product choice game (search for similar items in EconPapers)
JEL-codes: C73 D82 D83 L14 (search for similar items in EconPapers)
Date: 2018
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