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The Economic Research Institute, Stockholm School of Economics SSE/EFI Working Paper Series in Economics and Finance

No 590:
Learning to be prepared

Willemien Kets and Mark Voorneveld ()

Abstract: Behavioral economics provides several motivations for the common observation that agents appear somewhat unwilling to deviate from recent choices: salience, inertia, the formation of habits, the use of rules of thumb, or the locking in on certain modes of behavior due to learning by doing. This paper provides discrete-time adjustment processes for strategic games in which players display precisely such a bias towards recent choices. In addition, players choose best replies to beliefs supported by observed play in the recent past, in line with much of the literature on learning. These processes eventually settle down in the minimal prep sets of Voorneveld (2004, 2005).

Keywords: adjustment; learning; minimal prep sets; behavioral bias; salience; (follow links to similar papers)

JEL-Codes: C72; D83; (follow links to similar papers)

27 pages, March 7, 2005

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