Revisiting games of incomplete information with analogy-based expectations

Preferences for Fair Prices, Cursed Inferences, and the Nonneutrality of Money

“…13 This form of underinference also resembles inference in the analogy-based expectation equilibrium by Jehiel [2005] and Jehiel and Koessler [2008]. 14 In a symmetric equilibrium, firms' true nominal marginal cost is given by (17) and the nominal marginal cost perceived by households is given by (18), so the markup perceived by households is…”

“…Following the approach of Eyster and Rabin [2005], and similar to the analogy-based-expectations equilibrium of Jehiel [2005] and Jehiel and Koessler [2008], we make the assumption that consumers perceive firm i's nominal marginal cost to be MC When χ = 0, consumers are rational. When χ > 0, consumers are cursed: they underappreciate the extent to which changes in prices and other variables reveal changes in marginal costs.…”

A Comment on “Can Relaxation of Beliefs Rationalize the Winner's Curse?: An Experimental Study”

“…19 The other possibility for ABEE is the coarsest analogy partition which only includes the set of all states. 20 In this case, the equilibrium strategy shown in Table 4 is also ABEE for both BL/SBF and MB, implying b i (x i ) > x i for each X\{10} and similar behavior in all treatments.…”

“…We select three subjects from their experiment; #37 (BL), #133 (SBF ), and #114 (MB ). 6 For each of them, Table 1 lists the part I bid (PI) and the set of expected payoff maximizing bids in part II (PMB) for each signal. Note (i) that they could choose higher bids -even "max " -in part II than in part I for 6 (#37), 7 (#133) and 5 (#114) signals to maximize their expected payoffs (denoted with a " * ") and (ii) that b i (x i ) = x i does not necessarily maximize a subject's expected payoffs in part II of BL/SBF (denoted with a " †").…”

“…5 In MB, for example, while b i (x i ) = x i is the weakly dominant strategy for each x i ∈ X, for each strategy, there exists a belief to which the strategy in concern is a best response. 6 They choose b i (x i ) ∈ (x i + 0.25, 10] for six signals in part I (emphasized in bold face) and are Overbidders in part I according to ILN's classification.…”