Biased Belief Equilibrium

Heller, Yuval and Winter, Eyal (2020) Biased Belief Equilibrium. American Economic Journal: Microeconomics, 12 (2). pp. 1-40. ISSN 1945-7669

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Abstract

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.

Item Type:
Journal Article
Journal or Publication Title:
American Economic Journal: Microeconomics
Uncontrolled Keywords:
/dk/atira/pure/subjectarea/asjc/2000
Subjects:
ID Code:
134996
Deposited By:
Deposited On:
01 Jul 2019 15:20
Refereed?:
Yes
Published?:
Published
Last Modified:
25 Sep 2020 04:27