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Ex-post regret heuristics under private values (II): 2×2 games

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  • Saran, Rene
  • Serrano, Roberto

Abstract

When information is hardly available, the role of priors should be limited in robust game-theoretic predictions. We analyze a process of heuristics based on ex-post regret as a guide to understand how to play games of incomplete information with private values. While our dynamics has a strong component of inertia, its key is that with a small probability actions are modified in the direction of ex-post regrets. We apply stochastic stability to identify the strategies that will be used in the long run in 2×2 games (i.e., two players with two actions each). For a class of 2×2 games, which includes quasi-supermodular games satisfying “weak dominance”, the resulting theory predicts cautious behavior in the long run, as stochastically stable strategies are minimax regret equilibria. A minimax regret equilibrium is independent of the beliefs about the opponents’ types and actions (only the supports matter) and suggests a “safe way to play the game”.

Suggested Citation

  • Saran, Rene & Serrano, Roberto, 2014. "Ex-post regret heuristics under private values (II): 2×2 games," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 112-123.
    • Handle: RePEc:eee:mateco:v:54:y:2014:i:c:p:112-123
    DOI: 10.1016/j.jmateco.2014.06.004
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    Cited by:

    1. Werner Güth & Paul Pezanis-Christou, 2021. "An indirect evolutionary justification of risk neutral bidding in fair division games," International Journal of Game Theory, Springer;Game Theory Society, vol. 50(1), pages 63-74, March.
    2. Saran, Rene & Serrano, Roberto, 2014. "Ex-post regret heuristics under private values (I): Fixed and random matching," Journal of Mathematical Economics, Elsevier, vol. 54(C), pages 97-111.
    3. Paul Pezanis-Christou & Hang Wu, 2017. "A Naïve Approach to Bidding," School of Economics and Public Policy Working Papers 2017-03, University of Adelaide, School of Economics and Public Policy.
    4. García-Pola, Bernardo, 2020. "Do people minimize regret in strategic situations? A level-k comparison," Games and Economic Behavior, Elsevier, vol. 124(C), pages 82-104.
    5. Paul Pezanis-Christou & Hang Wu, 2018. "A non-game-theoretic approach to bidding in first-price and all-pay auctions," School of Economics and Public Policy Working Papers 2018-12, University of Adelaide, School of Economics and Public Policy.

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