Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 590: Learning to be prepared

Willemien Kets and Mark Voorneveld ()
Additional contact information
Willemien Kets: Department of Econometrics and Operations Research, Postal: Tilburg University, P.O.Box 90153, 5000 LE Tilburg, The Netherlands
Mark Voorneveld: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden

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

JEL-codes: C72; D83

27 pages, March 7, 2005

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