Revealed Preference Implications of Backward Induction and Subgame Perfection

2020 ◽  
Vol 12 (2) ◽  
pp. 230-256
Author(s):  
Pablo Schenone
Keyword(s):  
Nash Equilibrium ◽  
Decision Maker ◽  
Revealed Preference ◽  
Backward Induction ◽  
Multiplayer Games ◽  
Subgame Perfect Nash Equilibrium ◽  
Subgame Perfection ◽  
Choice Correspondence ◽  
Necessary And Sufficient ◽  
Weak Axiom

Consider a decision-maker (DM) who must select an alternative from a set of mutually exclusive alternatives but must take this decision sequentially. If the DM’s choice correspondence over subsets of alternatives satisfies the weak axiom of revealed preference (WARP), then the subgame perfect Nash equilibrium (SPNE) and backward induction (BI) strategies coincide. We study the relation between the SPNE and BI strategies when the DM’s choice correspondence fails to satisfy WARP. First, Sen’s axiom α is necessary and sufficient for the set of SPNE strategies to be a subset of the set of BI strategies; moreover, a mild strengthening of Sen’s axiom β is necessary and sufficient for the set of BI strategies to be a subset of the set of SPNE strategies. These results extend to multiplayer games. (JEL D11, C72, C73)

scholarly journals Set and revealed preference axioms for multi-valued choice

2020 ◽  
Author(s):  
Hans Peters ◽  
Panos Protopapas
Keyword(s):  
Social Choice ◽  
Preference Relation ◽  
Revealed Preference ◽  
The Other ◽  
Social Choice Correspondence ◽  
Other Hand ◽  
Independence Of Irrelevant Alternatives ◽  
Choice Correspondence ◽  
Infinite Set ◽  
Weak Axiom

Abstract We consider choice correspondences that assign a subset to every choice set of alternatives, where the total set of alternatives is an arbitrary finite or infinite set. We focus on the relations between several extensions of the condition of independence of irrelevant alternatives on one hand, and conditions on the revealed preference relation on sets, notably the weak axiom of revealed preference, on the other hand. We also establish the connection between the condition of independence of irrelevant alternatives and so-called strong sets; the latter characterize a social choice correspondence satisfying independence of irrelevant alternatives.

scholarly journals Nonparametric Analysis of Time-Inconsistent Preferences

2021 ◽  
Author(s):  
Laura Blow ◽  
Martin Browning ◽  
Ian Crawford
Keyword(s):  
Sufficient Conditions ◽  
Revealed Preference ◽  
Hyperbolic Discounting ◽  
Time Preferences ◽  
Hyperbolic Model ◽  
Nonparametric Analysis ◽  
Time Horizons ◽  
Time Inconsistent ◽  
Using Data ◽  
Necessary And Sufficient

Abstract This paper provides a revealed preference characterisation of quasi-hyperbolic discounting which is designed to be applied to readily-available expenditure surveys. We describe necessary and sufficient conditions for the leading forms of the model and also study the consequences of the restrictions on preferences popularly used in empirical lifecycle consumption models. Using data from a household consumption panel dataset we explore the prevalence of time-inconsistent behaviour. The quasi-hyperbolic model provides a significantly more successful account of behaviour than the alternatives considered. We estimate the joint distribution of time preferences and the distribution of discount functions at various time horizons.

scholarly journals Dinamicke igre ulaska na trziste

2005 ◽  
Vol 50 (165) ◽  
pp. 121-144
Author(s):  
Bozo Stojanovic
Keyword(s):  
Nash Equilibrium ◽  
Dynamic Games ◽  
Nash Equilibria ◽  
Dynamic Game ◽  
Backward Induction ◽  
Perfect Equilibrium ◽  
Equilibrium Concept ◽  
Reasonable Solution ◽  
Multiple Nash Equilibria ◽  
Entry Games

Market processes can be analyzed by means of dynamic games. In a number of dynamic games multiple Nash equilibria appear. These equilibria often involve no credible threats the implementation of which is not in the interests of the players making them. The concept of sub game perfect equilibrium rules out these situations by stating that a reasonable solution to a game cannot involve players believing and acting upon noncredible threats or promises. A simple way of finding the sub game perfect Nash equilibrium of a dynamic game is by using the principle of backward induction. To explain how this equilibrium concept is applied, we analyze the dynamic entry games.

ON INTERRELATIONS BETWEEN FUZZY CONGRUENCE AXIOMS

2012 ◽  
Vol 08 (03) ◽  
pp. 297-310
Author(s):  
S. R. CHAUDHARI ◽  
S. S. DESAI
Keyword(s):  
Transitive Closure ◽  
Revealed Preference ◽  
Arbitrary Domain ◽  
Fuzzy Congruence ◽  
Weak Axiom

In this paper we establish interrelations between fuzzy direct revelation axiom (FDRA), fuzzy transitive-closure coherence axiom (FTCCA), fuzzy consistent-closure coherence axiom (FCCCA) and fuzzy intermediate congruence axiom (FICA). We also establish their relationships with weak fuzzy congruence axiom (WFCA), strong fuzzy congruence axiom (SFCA) and weak axiom of fuzzy revealed preference (WAFRP). Condition for equivalence of fuzzy Arrow axiom (FAA) and weak fuzzy congruence axiom (WFCA) on arbitrary domain is also given.

The Weak Axiom of Revealed Preference in a Productive Economy

1989 ◽  
Vol 56 (4) ◽  
pp. 635 ◽  
Author(s):  
B. Grodal ◽  
W. Hildenbrand
Keyword(s):  
Revealed Preference ◽  
Weak Axiom

Bounded Rationality in the Centipede Game

Episteme ◽  
2011 ◽  
Vol 8 (3) ◽  
pp. 262-280 ◽  
Author(s):  
Ashton T. Sperry-Taylor
Keyword(s):  
Game Theory ◽  
Nash Equilibrium ◽  
Bounded Rationality ◽  
Real Life ◽  
Backward Induction ◽  
Rational Behavior ◽  
Normative Analysis ◽  
Cognitive Limitations ◽  
Real People ◽  
Rational Players

AbstractNormative game theory unsatisfactorily explains rational behavior. Real people do not behave as predicted, and what is prescribed as rational behavior is normally unattainable in real-life. The problem is that current normative analysis does not account for people's cognitive limitations – their bounded rationality. However, this paper develops an account of bounded rationality that explains the rationality of more realistic behavior. I focus on the Centipede Game, in which boundedly rational players explore and test others' immediate behavior, until they can apply limited backward induction. The result is that the game has a solution in the form of a subjective Nash equilibrium, which boundedly rational players can possibly realize.

scholarly journals Optimal Liquidity Provision Through a Demand Deposit Scheme: The Jacklin Critique Revisited

2013 ◽  
Vol 14 (1) ◽  
pp. 89-107 ◽  
Author(s):  
Alexander Zimper
Keyword(s):  
Nash Equilibrium ◽  
Formal Analysis ◽  
Asset Markets ◽  
Asset Market ◽  
Free Access ◽  
Subgame Perfect Nash Equilibrium ◽  
Liquidity Provision ◽  
Ex Post ◽  
Demand Deposit ◽  
Future Income

Abstract We derive conditions such that optimal liquidity provisions through a demand deposit scheme can be sustainably implemented in a subgame perfect Nash equilibrium under the assumption that renegade investors have free access to ex post asset markets. As our qualitative main finding we demonstrate that such sustainability is more likely for ‘poor’ than for ‘rich’ scheme participants in terms of future income. By establishing sustainability for low future income populations, our formal analysis therefore offers an important qualification of Jacklin’s (1987) influential claim that an optimal demand deposit scheme is not sustainable whenever there exists the possibility of an ex post asset market.

Sign in / Sign up

Export Citation Format

Share Document