Which misspecifications persist?

Drew Fudenberg and Giacomo Lanzani ()
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Giacomo Lanzani: Department of Economics, Massachusettes Institute of Technology

Theoretical Economics, 2023, vol. 18, issue 3

Abstract: We use an evolutionary model to determine which misperceptions can persist. Every period, a new generation of agents use their subjective models and the data generated by the previous generation to update their beliefs, and models that induce better actions become more prevalent. An equilibrium can resist mutations that lead agents to use a model that better fits the equilibrium data but induce the mutated agents to take an action with lower payoffs. We characterize which steady states resist mutations to a nearby model, and which resist mutations that drop a qualitative restriction such as independence.

Keywords: Misspecified learning; Berk-Nash equilibrium; evolution; payoff monotone dynamics (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2023-07-20
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