A comment on 'Rational learning lead to nash equilibrium' by professors Ehud Kalai and Ehud Lehrer

Alvaro Sandroni and Sergio Werlang

No 256, FGV EPGE Economics Working Papers (Ensaios Economicos da EPGE) from EPGE Brazilian School of Economics and Finance - FGV EPGE (Brazil)

Abstract: Kalai and Lebrer (93a, b) have recently show that for the case of infinitely repeated games, a coordination assumption on beliefs and optimal strategies ensures convergence to Nash equilibrium. In this paper, we show that for the case of repeated games with long (but finite) horizon, their condition does not imply approximate Nash equilibrium play. Recently Kalai and Lehrer (93a, b) proved that a coordination assumption on beliefs and optimal strategies, ensures that pIayers of an infinitely repeated game eventually pIay 'E-close' to an E-Nash equilibrium. Their coordination assumption requires that if players believes that certain set of outcomes have positive probability then it must be the case that this set of outcomes have, in fact, positive probability. This coordination assumption is called absolute continuity. For the case of finitely repeated games, the absolute continuity assumption is a quite innocuous assumption that just ensures that pIayers' can revise their priors by Bayes' Law. However, for the case of infinitely repeated games, the absolute continuity assumption is a stronger requirement because it also refers to events that can never be observed in finite time.

Date: 1995-02
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