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Research output: Contribution to Journal/Magazine › Journal article › peer-review
Research output: Contribution to Journal/Magazine › Journal article › peer-review
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TY - JOUR
T1 - Biased Belief Equilibrium
AU - Heller, Yuval
AU - Winter, Eyal
PY - 2020/5/1
Y1 - 2020/5/1
N2 - We investigate how distorted, yet structured, beliefs can persist in strategic situations. Specifically, we study two-player games in which each player is endowed with a biased-belief function that represents the discrepancy between a player’s beliefs about the opponent's strategy and the actual strategy. Our equilibrium condition requires that: (1) each player choose a best-response strategy to his distorted belief about the opponent's strategy, and (2) the distortion functions form best responses to one another. We obtain sharp predictions and novel insights into the set of stable outcomes and their supporting stable biases in various classes of games.
AB - We investigate how distorted, yet structured, beliefs can persist in strategic situations. Specifically, we study two-player games in which each player is endowed with a biased-belief function that represents the discrepancy between a player’s beliefs about the opponent's strategy and the actual strategy. Our equilibrium condition requires that: (1) each player choose a best-response strategy to his distorted belief about the opponent's strategy, and (2) the distortion functions form best responses to one another. We obtain sharp predictions and novel insights into the set of stable outcomes and their supporting stable biases in various classes of games.
U2 - 10.1257/mic.20170400
DO - 10.1257/mic.20170400
M3 - Journal article
VL - 12
SP - 1
EP - 40
JO - American Economic Journal: Microeconomics
JF - American Economic Journal: Microeconomics
SN - 1945-7669
IS - 2
ER -