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How burning money requires a lot of rationality to be effective

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  • Seel, Christian
  • Wichardt, Philipp C.

Abstract

This paper proposes an extension of the valuation equilibrium concept (Jehiel and Samet, 2007), which partly endogenises the underlying grouping of actions. The effect on equilibrium predictions is illustrated in a burning money game.

Suggested Citation

  • Seel, Christian & Wichardt, Philipp C., 2012. "How burning money requires a lot of rationality to be effective," Economics Letters, Elsevier, vol. 115(1), pages 111-113.
    • Handle: RePEc:eee:ecolet:v:115:y:2012:i:1:p:111-113
    DOI: 10.1016/j.econlet.2011.11.044
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    References listed on IDEAS

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    1. , & ,, 2007. "Valuation equilibrium," Theoretical Economics, Econometric Society, vol. 2(2), June.
    2. Huck, Steffen & Muller, Wieland, 2005. "Burning money and (pseudo) first-mover advantages: an experimental study on forward induction," Games and Economic Behavior, Elsevier, vol. 51(1), pages 109-127, April.
    3. Ben-Porath, Elchanan & Dekel, Eddie, 1992. "Signaling future actions and the potential for sacrifice," Journal of Economic Theory, Elsevier, vol. 57(1), pages 36-51.
    4. Rubinstein, Ariel, 1986. "Finite automata play the repeated prisoner's dilemma," Journal of Economic Theory, Elsevier, vol. 39(1), pages 83-96, June.
    5. van Damme, E.E.C., 1989. "Stable equilibria and forward induction," Other publications TiSEM bd598a8f-f017-4cab-a9ed-8, Tilburg University, School of Economics and Management.
    6. Unknown, 2005. "Forward," 2005 Conference: Slovenia in the EU - Challenges for Agriculture, Food Science and Rural Affairs, November 10-11, 2005, Moravske Toplice, Slovenia 183804, Slovenian Association of Agricultural Economists (DAES).
    7. Wichardt, Philipp C., 2012. "Existence of valuation equilibria when equilibrium strategies cannot differentiate between equal ties," Games and Economic Behavior, Elsevier, vol. 74(2), pages 709-713.
    8. van Damme, Eric, 1989. "Stable equilibria and forward induction," Journal of Economic Theory, Elsevier, vol. 48(2), pages 476-496, August.
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    More about this item

    Keywords

    Bounded rationality; Burning money; Forward induction; Valuation equilibrium;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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