Skills, Complexity, and Backward Induction

2019 ◽  
Author(s):  
Konrad Grabiszewski ◽  
Alex R. Horenstein
Keyword(s):  
Author(s):  
Spyros Galanis

AbstractAmbiguity sensitive preferences must fail either Consequentialism or Dynamic Consistency (DC), two properties that are compatible with subjective expected utility and Bayesian updating, while forming the basis of backward induction and dynamic programming. We examine the connection between these properties in a general environment of convex preferences over monetary acts and find that, far from being incompatible, they are connected in an economically meaningful way. In single-agent decision problems, positive value of information characterises one direction of DC. We propose a weakening of DC and show that one direction is equivalent to weakly valuable information, whereas the other characterises the Bayesian updating of the subjective beliefs which are revealed by trading behavior.


Episteme ◽  
2011 ◽  
Vol 8 (3) ◽  
pp. 248-261 ◽  
Author(s):  
Ken Binmore

AbstractRobert Aumann argues that common knowledge of rationality implies backward induction in finite games of perfect information. I have argued that it does not. A literature now exists in which various formal arguments are offered in support of both positions. This paper argues that Aumann's claim can be justified if knowledge is suitably reinterpreted.


2021 ◽  
Vol 07 (03) ◽  
pp. 2150012
Author(s):  
Sahar Farid Yousef

More than one-quarter of the world’s population lives in water-scarce areas, while most countries share at least one transboundary river. If water scarcity is this prevalent, should we expect riparian countries to fight over the water allocation of shared rivers? To answer this question, I develop a modified one-shot three-stage river-sharing game where countries can resort to force to solve their water allocation problem. Using backward induction, I solve for the probability of the downstream country initiating conflict against the upstream country and the likelihood of the latter responding with force to the former’s hostile actions. I test the model empirically using a set of all upstream–downstream riparian dyads with available data from AQUASTAT and the Correlates of War Project for the years 1960–2010. The main contribution of this paper is that it demonstrates how upstream and downstream riparian countries differ in their decision to use force against the other country when experiencing water scarcity. I find that water scarcity increases the likelihood of the downstream country initiating the conflict, but it has no effect on the upstream country’s likelihood of responding with force. If history is a predictor of the future, then the results imply that as more riparian countries become water-scarce, militarized conflicts between upstream and downstream countries are likely to increase, especially if there is heterogeneity in water availability between the riparian dyad.


2003 ◽  
Vol 44 (156) ◽  
pp. 21-43
Author(s):  
Milic Milovanovic

In this paper power struggle over the control of an insider privatized firm is modeled as a sequential game with perfect information. The endogenous corruption is a consequence of an insider privatization plan, where employees obtain majority of shares. In the post privatization game three players are dominant: managers, employees, and outside owners. Managers are by far the strongest player, with their key position in privatized firms despite their minority ownership stake. Since managers control working conditions of employees-cum-owners, they exercise an unparalleled power. Motivational structure is given for each player. Their ranked lists of goals and fears are necessary in order to specify parameters for the model. The game is modeled in an extensive form, and backward induction suggests a coalition of insiders (managers and employees) against the interests of outsiders. Under stated conditions, the equilibrium strategy results in an endogenous corruption.


2005 ◽  
Vol 50 (165) ◽  
pp. 121-144
Author(s):  
Bozo Stojanovic

Market processes can be analyzed by means of dynamic games. In a number of dynamic games multiple Nash equilibria appear. These equilibria often involve no credible threats the implementation of which is not in the interests of the players making them. The concept of sub game perfect equilibrium rules out these situations by stating that a reasonable solution to a game cannot involve players believing and acting upon noncredible threats or promises. A simple way of finding the sub game perfect Nash equilibrium of a dynamic game is by using the principle of backward induction. To explain how this equilibrium concept is applied, we analyze the dynamic entry games.


2014 ◽  
Vol 30 (3) ◽  
pp. 331-364 ◽  
Author(s):  
Andrés Perea

In this paper we explore game-theoretic reasoning in dynamic games within the framework of belief revision theory. More precisely, we focus on the forward induction concept of ‘common strong belief in rationality’ (Battigalli and Siniscalchi (2002) and the backward induction concept of ‘common belief in future rationality’ (Baltag et al. 2009; Perea 2014). For both concepts we investigate whether the entire collection of selected belief revision policies for a player can be characterized by a unique plausibility ordering. We find that this is indeed possible for ‘common strong belief in rationality’, whereas this may be impossible in some games for ‘common belief in future rationality’.


2019 ◽  
Vol 67 (5) ◽  
pp. 3443-3456 ◽  
Author(s):  
Di Zhou ◽  
Min Sheng ◽  
Jie Luo ◽  
Runzi Liu ◽  
Jiandong Li ◽  
...  

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