Endogenous clustering and analogy-based expectation equilibrium
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arXiv
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| Main Authors: | , |
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| Format: | Preprint |
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2025
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| _version_ | 1866912382076321792 |
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| author | Jehiel, Philippe Weber, Giacomo |
| author_facet | Jehiel, Philippe Weber, Giacomo |
| contents | Normal-form two-player games are categorized by players into K analogy classes so as to minimize the prediction error about the behavior of the opponent. This results in Clustered Analogy-Based Expectation Equilibria in which strategies are analogy-based expectation equilibria given the analogy partitions and analogy partitions minimize the prediction errors given the strategies. We distinguish between environments with self-repelling analogy partitions in which some mixing over partitions is required and environments with self-attractive partitions in which several analogy partitions can arise, thereby suggesting new channels of belief heterogeneity and equilibrium multiplicity. Various economic applications are discussed. |
| format | Preprint |
| id |
arxiv_https___arxiv_org_abs_2505_13022 |
| institution | arXiv |
| publishDate | 2025 |
| record_format | arxiv |
| spellingShingle | Endogenous clustering and analogy-based expectation equilibrium Jehiel, Philippe Weber, Giacomo Theoretical Economics Normal-form two-player games are categorized by players into K analogy classes so as to minimize the prediction error about the behavior of the opponent. This results in Clustered Analogy-Based Expectation Equilibria in which strategies are analogy-based expectation equilibria given the analogy partitions and analogy partitions minimize the prediction errors given the strategies. We distinguish between environments with self-repelling analogy partitions in which some mixing over partitions is required and environments with self-attractive partitions in which several analogy partitions can arise, thereby suggesting new channels of belief heterogeneity and equilibrium multiplicity. Various economic applications are discussed. |
| title | Endogenous clustering and analogy-based expectation equilibrium |
| topic | Theoretical Economics |
| url | https://arxiv.org/abs/2505.13022 |