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T-Space at The University of Toronto Libraries >
Theoretical Economics >
Volume 2, Number 2 (June 2007) >

Please use this identifier to cite or link to this item: http://hdl.handle.net/1807/9743

Title: Valuation equilibrium
Authors: Philippe Jehiel; PSE and UCL
Dov Samet; Tel Aviv University
Keywords: Game theory, bounded rationality, valuation, similarity, aspiration
C72, D81
Issue Date: 3-Jun-2007
Publisher: Theoretical Economics
Citation: Theoretical Economics; Vol 2, No 2 (2007)
Abstract: [This item is a preserved copy. To view the original, visit http://econtheory.org/] We introduce a new solution concept for games in extensive form with perfect information, valuation equilibrium, which is based on a partition of each player's moves into similarity classes. A valuation of a player is a real-valued function on the set of her similarity classes. In this equilibrium each player's strategy is optimal in the sense that at each of her nodes, a player chooses a move that belongs to a class with maximum valuation. The valuation of each player is consistent with the strategy profile in the sense that the valuation of a similarity class is the player's expected payoff, given that the path (induced by the strategy profile) intersects the similarity class. The solution concept is applied to decision problems and multi-player extensive form games. It is contrasted with existing solution concepts. The valuation approach is next applied to stopping games, in which non-terminal moves form a single similarity class, and we note that the behaviors obtained echo some biases observed experimentally. Finally, we tentatively suggest a way of endogenizing the similarity partitions in which moves are categorized according to how well they perform relative to the expected equilibrium value, interpreted as the aspiration level.
URI: http://hdl.handle.net/1807/9743
Other Identifiers: http://econtheory.org/ojs/index.php/te/article/view/20070163
Rights: Authors who publish in <i>Theoretical Economics</i> will release their articles under the <a href="http://creativecommons.org/licenses/by-nc/2.5/">Creative Commons Attribution-NonCommercial license</a>. This license allows anyone to copy and distribute the article for non-commercial purposes provided that appropriate attribution is given.
Appears in Collections:Volume 2, Number 2 (June 2007)

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