The Implications of Case-Based Reasoning in Strategic Contexts
This paper characterises the transient dynamics and the long-term behaviour of a game theoretical model where players’ decisions at any particular time are guided by a single similar situation they experienced in the past — a simple form of case-based reasoning. The transient dynamics of the model are very dependent on the process by which players learn how to play the game in any given situation. The long-run behaviour of the model varies significantly depending on whether players can occasionally explore different actions or not. When the probability of experimentation is small but non-zero, only a subset of the outcomes that are possible in the absence of experimentation persists in the long-run. In this paper we present some features that characterise such a subset of stochastically stable outcomes.
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