Biased-Belief Equilibrium

Yuval Heller and Eyal Winter ()

MPRA Paper from University Library of Munich, Germany

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: (1) each player choose a best-response strategy to his distorted belief about the opponent's strategy, and (2) the distortion functions form best responses to one another, in the sense that if one of the players is endowed with a different distortion function, then that player is outperformed in the game induced by this new distortion function. We impose a mild monotonicity restriction on the feasible biased beliefs, and we obtain sharp predictions and novel insights into the set of stable outcomes and their supporting stable biases in various classes of games.

Keywords: commitment; indirect evolutionary approach; distortions; wishful thinking; strategic complements; strategic substitutes. (search for similar items in EconPapers)
JEL-codes: C73 D83 (search for similar items in EconPapers)
Date: 2011-11-01, Revised 2018-11-09
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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https://mpra.ub.uni-muenchen.de/92317/1/MPRA_paper_92317.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/92294/1/MPRA_paper_92294.pdf revised version (application/pdf)
https://mpra.ub.uni-muenchen.de/92325/1/MPRA_paper_92325.pdf revised version (application/pdf)

Related works:
Journal Article: Biased-Belief Equilibrium (2020)
Working Paper: Biased-Belief Equilibrium (2020)
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