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Rational conjectures and evolutionary beliefs in public goods games

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  • Matthew McGinty

Abstract

This paper applies conjectural variations (CVs) to a model of public good provision and shows that CVs are superior to Nash beliefs. In addition to imposing consistency, as Bresnahan, I show that consistent conjectures (CCs) are obtained from individual payoff maximization. CCs emerge as the unique subgame perfect Nash equilibrium (NE) in a two‐stage game in which beliefs are chosen in Stage 1 and quantities in Stage 2. There is an individual payoff advantage to non‐Nash behavior, generating a Prisoner's Dilemma in conjectures in addition to the usual free‐rider problem associated with public goods. The correct and payoff maximizing conjecture is the unique equilibrium in an evolutionary framework against a player with Nash conjectures. The consistent conjecture equilibrium is the unique evolutionary equilibrium when both players conjectures evolve. Hence, the NE prediction is too optimistic when players have rational conjectures.

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  • Matthew McGinty, 2021. "Rational conjectures and evolutionary beliefs in public goods games," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 23(6), pages 1130-1143, December.
    • Handle: RePEc:bla:jpbect:v:23:y:2021:i:6:p:1130-1143
    DOI: 10.1111/jpet.12503
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