Abstract.
Agents are drawn from a large population and matched to play a symmetric \(2\times2\) coordination game, the payoffs of which are perturbed by agent-specific heterogeneity. Individuals observe a (possibly sampled) history of play, which forms the initial hypothesis for an opponent's behaviour. Using this hypothesis as a starting point, the agents iteratively reason toward a Bayesian Nash equilibrium. When sampling is complete and the noise becomes vanishingly small, a single equilibrium is played almost all the time. A necessary and sufficient condition for selection, shown to be closely related (but not identical) to risk-dominance, is derived. When sampling is sufficiently incomplete, the risk-dominant equilibrium is played irrespective of the history observed.
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JEL Classification:
C72, C73
The authors thank Tom Norman, Kevin Roberts, Hyun Shin, Peyton Young, the editor and an anonymous referee for helpful comments.
Correspondence to: C. Wallace
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Myatt, D.P., Wallace, C. Sophisticated play by idiosyncratic agents. J. Evol. Econ. 13, 319–345 (2003). https://doi.org/10.1007/s00191-003-0156-x
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DOI: https://doi.org/10.1007/s00191-003-0156-x