Biased-Belief Equilibrium

Yuval Heller and Eyal Winter ()

Papers from arXiv.org

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.

Date: 2020-06
New Economics Papers: this item is included in nep-gth and nep-mic
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Published in AMERICAN ECONOMIC JOURNAL: MICROECONOMICS American Economic Journal: Microeconomics, 12(2), MAY 2020, pp. 1-40

Downloads: (external link)
http://arxiv.org/pdf/2006.15306 Latest version (application/pdf)

Related works:
Journal Article: 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:arx:papers:2006.15306

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().