SITE Working Paper Series
Paying Attention to Payoffs in Analogy-Based Learning
Abstract: This paper introduces the payoff-confirming analogy-based
expectation equilibrium (PCABEE) as a way to refine the set of
analogy-based equilibria and the associated admissible analogy partitions.
In addition to the actions of others, own payoff history provides
information about others’ strategies but, yet, non-Bayesian Nash equilibria
may exist both with an incorrect and a correct prior. We provide general
conditions when this happens. Two stylized employer-employee interactions,
one with a correct and one with an incorrect prior, are provided
illustrating how PCABEE can be used to analyze robust stereotypes and how
incorrect such stereotypes may lead to discrimination.
Keywords: analogy expectations; bounded rationality; curse; learning; discrimination; stereotypes; (follow links to similar papers)
JEL-Codes: C72; D82; (follow links to similar papers)
31 pages, December 28, 2009
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