Online concealed correlation and bounded rationality

Gilad Bavly; Abraham Neyman

doi:10.1016/j.geb.2014.08.004

Online concealed correlation and bounded rationality

Gilad Bavly, Abraham Neyman

Research output: Contribution to journal › Article › peer-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 language	English
Pages (from-to)	71-89
Number of pages	19
Journal	Games and Economic Behavior
Volume	88
DOIs	https://doi.org/10.1016/j.geb.2014.08.004
State	Published - 1 Nov 2014
Externally published	Yes

Bibliographical note

Publisher Copyright:
© 2014 Elsevier Inc.

Funding

This research was supported in part by Israel Science Foundation grants 382/98 , 263/03 , 1123/06 , 1596/10 , and 538/11 , by United States–Israel Binational Science Foundation Grant 2010253 , and by the Zvi Hermann Shapira Research Fund grant 82893 . Helpful discussions and comments by Elchanan Ben-Porath, Olivier Gossner, Penelope Hernandez, Rann Smorodinsky, and Eilon Solan are gratefully acknowledged.

Funders	Funder number
Zvi Hermann Shapira Research Fund	82893
United States-Israel Binational Science Foundation	2010253
Israel Science Foundation	263/03, 382/98, 1123/06, 1596/10, 538/11

Keywords

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

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10.1016/j.geb.2014.08.004

Cite this

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Online concealed correlation and bounded rationality

Abstract

Bibliographical note

Funding

Keywords

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