Geanakoplos and Sebenius model with noise

Doron Sonsino ()

International Journal of Game Theory, 1998, vol. 27, issue 1, 130 pages

Abstract: Assume that two risk neutral agents with asymmetric information simultaneously expect a gain from zero-sum betting. Geanakoplos and Sebenius (1983) (henceforth GS) consider the case where the agents may re-evaluate the profitability of betting successively before the payments are realized. They prove that one of the players must reject the proposed bet within some finite number $(N_0)$ of re-evaluation rounds. This paper extends the GS model to the case where there exists a small probability that players accept the bet when they should reject it. We claim that, generically, the GS results are not effected by small noise. That is, when is low, the players will reject the bet within $N_0$ iterations with probability close to one. Surprisingly, we find a non-generic example where - for every positive - the agents keep expecting a gain from betting forever. Our main Theorem, however, says that even when the noise is large and even in such non generic examples one of the following two alternatives must hold: (A) Some agent expects a loss from betting (and thus rejects the bet with high probability) after some finite number of re-evaluation rounds, or (B) The expected gain from betting goes to zero for both agents. Moreover, if there is a small cost to entertaining the bet, then some player must expect a loss from betting eventually.

Keywords: Zero-sum; betting; ·; asymmetric; information; ·; noisy; information (search for similar items in EconPapers)
Date: 1998-05-19
Note: Received February 1996/Revised version August 1996/Final version March 1997
References: Add references at CitEc
Citations: View citations in EconPapers (5)

Downloads: (external link)
http://link.springer.de/link/service/journals/00182/papers/8027001/80270111.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

Related works:
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:spr:jogath:v:27:y:1998:i:1:p:111-130

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/182/PS2

Access Statistics for this article

International Journal of Game Theory is currently edited by Shmuel Zamir, Vijay Krishna and Bernhard von Stengel

More articles in International Journal of Game Theory from Springer, Game Theory Society
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().