Heuristics in experiments with infinitely large strategy spaces

Jørgen Vitting Andersen and Philippe de Peretti

Journal of Business Research, 2021, vol. 129, issue C, 612-620

Abstract: We introduce a new methodology that enables detection of the onset of convergence towards Nash equilibria in simple repeated games with infinitely large strategy spaces, thereby revealing the heuristics used in decision-making. The method works by constraining on a special finite subset of strategies, called decoupled strategies. We show how the technique can be applied to understand price formation in financial market experiments by introducing a predictive measure ΔD: the different between positive decoupled strategies (recommending to buy) and negative decoupled strategies (recommending to sell). Using ΔD we illustrate how the method can predict (at certain special times) participants' actions with a high success rate in a series of experiments.

Keywords: Complexity theory; Bounded rationality; Multi-period games; Infinite strategy space; Decoupling; Agent-based modeling (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jbrese:v:129:y:2021:i:c:p:612-620

DOI: 10.1016/j.jbusres.2019.12.034

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