Online concealed correlation and bounded rationality

Gilad Bavly*, Abraham Neyman

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

4 Scopus citations

Abstract

Correlation of players' actions may evolve in the common course of the play of a repeated game with perfect monitoring ("online correlation"). In this paper we study the concealment of such correlation from a boundedly rational player. We show that "strong" players, i.e., players whose strategic complexity is less stringently bounded, can orchestrate the online correlation of the actions of "weak" players, where this correlation is concealed from an opponent of "intermediate" strength. The feasibility of such "online concealed correlation" is reflected in the individually rational payoff of the opponent and in the equilibrium payoffs of the repeated game.This result enables the derivation of a folk theorem that characterizes the set of equilibrium payoffs in a class of repeated games with boundedly rational players and a mechanism designer who sends public signals.The result is illustrated in two models, bounded recall strategies and finite automata.

Original languageEnglish
Pages (from-to)71-89
Number of pages19
JournalGames and Economic Behavior
Volume88
DOIs
StatePublished - 1 Nov 2014

Bibliographical note

Publisher Copyright:
© 2014 Elsevier Inc.

Keywords

  • Bounded recall
  • Concealed correlation
  • Equilibrium payoffs
  • Finite automata
  • Folk theorem
  • Repeated games

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