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19
Speculation Duopoly with Agreement to Disagree: Can Overconfidence Survive the Market Test?
 Journal of Finance
, 1997
"... In a duopoly model of informed speculation, we show that overconfidence may strictly dominate rationality since an overconfident trader may not only generate higher expected profit and utility than his rational opponent, but also higher than if he were also rational. This occurs because overconfiden ..."
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Cited by 105 (1 self)
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In a duopoly model of informed speculation, we show that overconfidence may strictly dominate rationality since an overconfident trader may not only generate higher expected profit and utility than his rational opponent, but also higher than if he were also rational. This occurs because overconfidence acts like a commitment device in a standard Cournot duopoly. As a result, for some parameter values the Nash equilibrium of a twofund game is a Prisoner's Dilemma in which both funds hire overconfident managers. Thus, overconfidence can persist and survive in the long run. 2 The rational expectations hypothesis implies that economic agents make decisions as though they know a correct probability distribution of the underlying uncertainty. According to the traditional view (Alchian (1950) and Friedman (1953)), the rational expectations hypothesis is empirically plausible because rational beliefs are better able to survive the market test than irrational beliefs. Yet, the empirical liter...
Evolutionary Game Dynamics in Finite Populations
, 2004
"... We introduce a model of stochastic evolutionary game dynamics in finite populations which is similar to the familiar replicator dynamics for infinite populations. Our focus is on the conditions for selection favoring the invasion and/or fixation of new phenotypes. For infinite populations, there are ..."
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Cited by 48 (12 self)
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We introduce a model of stochastic evolutionary game dynamics in finite populations which is similar to the familiar replicator dynamics for infinite populations. Our focus is on the conditions for selection favoring the invasion and/or fixation of new phenotypes. For infinite populations, there are three generic selection scenarios describing evolutionary game dynamics among two strategies. For finite populations, there are eight selection scenarios. For a fixed payoff matrix a number of these scenarios can occur for different population sizes. We discuss several examples with unexpected behavior.
Imitators and Optimizers in Symmetric nFirm Cournot Oligopoly
, 2002
"... I present a formal model of symmetric nfirm Cournot oligopoly with a heterogeneous population of profit optimizers and imitators... ..."
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Cited by 4 (3 self)
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I present a formal model of symmetric nfirm Cournot oligopoly with a heterogeneous population of profit optimizers and imitators...
Competitive Behavior in Market Games: Evidence and Theory ∗
, 2008
"... We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favo ..."
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Cited by 3 (1 self)
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We explore whether competitive outcomes arise in an experimental implementation of a market game, introduced by Shubik (1972). Market games obtain Pareto inferior (strict) Nash equilibria, in which some markets are closed. We find that subjects do not coordinate on autarkic Nash equilibria, but favor more efficient Nash equilibria in which all markets are open. As the number of subjects participating in the market game increases, the Nash equilibria they achieve approximates the associated Walrasian equilibrium of the underlying economy. Motivated by these findings, we investigate theoretically whether evolutionary forces lead to Walrasian outcomes in such games. We introduce a strong version of evolutionary stable strategies (SESS) forfinite populations. Our concept requires stability against deviations by coalitions of agents. A small coalition of trading agents is sufficient for Pareto improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate competitive outcomes constitute the only approximate SESS.
Pure Strategy Equilibria in Symmetric TwoPlayer ZeroSum Games ∗
, 2010
"... We show that a symmetric twoplayer zerosum game has a pure strategy equilibrium if and only if it is not a generalized rockpaperscissors matrix. Moreover, we show that every finite symmetric quasiconcave twoplayer zerosum game has a pure equilibrium. Further sufficient conditions for existence ..."
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Cited by 2 (2 self)
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We show that a symmetric twoplayer zerosum game has a pure strategy equilibrium if and only if it is not a generalized rockpaperscissors matrix. Moreover, we show that every finite symmetric quasiconcave twoplayer zerosum game has a pure equilibrium. Further sufficient conditions for existence are provided. We point out that the class of symmetric twoplayer zerosum games coincides with the class of relative payoff games associated with symmetric twoplayer games. This allows us to derive results on the existence of finite population evolutionary stable strategies. Keywords: Symmetric twoplayer games, zerosum games, RockPaperScissors, singlepeakedness, quasiconcavity, finite population evolutionary stable strategy, saddle point, exact potential games.
Pure saddle points and symmetric relative payoff games, mimeo
, 2010
"... It is well known that the rockpaperscissors game has no pure saddle point. We show that this holds more generally: A symmetric twoplayer zerosum game has a pure saddle point if and only if it is not a generalized rockpaperscissors game. Moreover, we show that every finite symmetric quasiconcav ..."
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Cited by 1 (1 self)
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It is well known that the rockpaperscissors game has no pure saddle point. We show that this holds more generally: A symmetric twoplayer zerosum game has a pure saddle point if and only if it is not a generalized rockpaperscissors game. Moreover, we show that every finite symmetric quasiconcave twoplayer zerosum game has a pure saddle point. Further sufficient conditions for existence are provided. We apply our theory to a rich collection of examples by noting that the class of symmetric twoplayer zerosum games coincides with the class of relative payoff games associated with symmetric twoplayer games. This allows us to derive results on the existence of a finite population evolutionary stable strategies. Keywords: Symmetric twoplayer games, zerosum games, RockPaperScissors, singlepeakedness, quasiconcavity, finite population evolutionary stable strategy, increasing differences, decreasing differences, potentials, additive separability.
Unbeatable Imitation ∗
, 2010
"... We show that for many classes of symmetric twoplayer games, the simple decision rule “imitatethebest ” can hardly be beaten by any other decision rule. We provide necessary and sufficient conditions for imitation to be unbeatable and show that it can only be beaten by much in games that are of th ..."
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Cited by 1 (1 self)
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We show that for many classes of symmetric twoplayer games, the simple decision rule “imitatethebest ” can hardly be beaten by any other decision rule. We provide necessary and sufficient conditions for imitation to be unbeatable and show that it can only be beaten by much in games that are of the rockscissorspaper variety. Thus, in many interesting examples, like 2x2 games, Cournot duopoly, price competition, rent seeking, public goods games, common pool resource games, minimum effort coordination games, arms race, search, bargaining, etc., imitation cannot be beaten by much even by a very clever opponent. Keywords: Imitatethebest, learning, symmetric games, relative payoffs, zerosum games, rockpaperscissors, finite population ESS, potential games, quasisubmodular games, quasisupermodular games, quasiconcave games, aggregative games.
Behavioral Economics as Applied to Firms: A Primer
, 2010
"... We discuss the literatures on behavioral economics, bounded rationality and experimental economics as they apply to firm behavior in markets. Topics discussed include the impact of imitative and ..."
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Cited by 1 (0 self)
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We discuss the literatures on behavioral economics, bounded rationality and experimental economics as they apply to firm behavior in markets. Topics discussed include the impact of imitative and
Convergence in the Finite Cournot Oligopoly with Social and Individual Learning
, 2009
"... Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability ..."
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Cited by 1 (1 self)
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Convergence to the Nash equilibrium in a Cournot oligopoly is a question that recurrently arises as a subject of controversy in economics. The development of evolutionary game theory has provided an equilibrium concept more directly connected with adjustment dynamics, and the evolutionary stability of the equilibria of the Cournot game has been extensively studied in the literature. Several articles show that the Walrasian equilibrium is the stable ESS of the Cournot game. But no general result has been established for the difficult case of simultaneous heterogenous mutations. Authors propose specific selection dynamics to analyze this case. Vriend (2000) proposes using a genetic algorithm for studying learning dynamics in this game and obtains convergence to Cournot equilibrium with individual learning. The resulting convergence has been questioned by Arifovic and Maschek (2006). The aim of this article is to clarify this controversy: it analyzes the mechanisms that are behind these contradictory results and underlines the specific role of the spite effect. We show why social learning gives rise to the Walrasian equilibrium and why, in a general setup, individual learning can effectively yield convergence to the Cournot equilibrium. We also illustrate these general