IDEAS home Printed from https://ideas.repec.org/p/hrv/faseco/4686412.html
   My bibliography  Save this paper

Self-confirming Equilibrium and the Lucas Critique

Author

Listed:
  • Fudenberg, Drew
  • Levine, David K.

Abstract

We examine the role of off-path “superstitions†in macro-economics, and show how a false belief about off-path play is the key element underlying both the Lucas Critique and the game-theoretic concept of self-confirming equilibrium. However, the impact of false beliefs in these two cases is different: In the Lucas case, a policy maker's incorrect beliefs about off-path play can lead to the adoption of mistaken policy innovation. However, the consequences of such an innovation provide evidence that the belief that motivated them was wrong. In contrast, play may never escape an undesirable self-confirming equilibrium, as the action implied by the mistaken belief does not generate data that contradicts it; escape from the self-confirming equilibrium requires that players do a sufficient amount of experimentation with off-path actions.

Suggested Citation

  • Fudenberg, Drew & Levine, David K., 2009. "Self-confirming Equilibrium and the Lucas Critique," Scholarly Articles 4686412, Harvard University Department of Economics.
    • Handle: RePEc:hrv:faseco:4686412
    as

    Download full text from publisher

    File URL: http://dash.harvard.edu/bitstream/handle/1/4686412/Fudenberg_LucasCritique.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Dekel, Eddie & Fudenberg, Drew & Levine, David K., 2004. "Learning to play Bayesian games," Games and Economic Behavior, Elsevier, vol. 46(2), pages 282-303, February.
    2. Dekel, Eddie & Fudenberg, Drew & Levine, David K., 1999. "Payoff Information and Self-Confirming Equilibrium," Journal of Economic Theory, Elsevier, vol. 89(2), pages 165-185, December.
    3. Fudenberg, Drew & Levine, David K, 1993. "Steady State Learning and Nash Equilibrium," Econometrica, Econometric Society, vol. 61(3), pages 547-573, May.
    4. Borgers Tilman, 1994. "Weak Dominance and Approximate Common Knowledge," Journal of Economic Theory, Elsevier, vol. 64(1), pages 265-276, October.
    5. Kalai, Ehud & Lehrer, Ehud, 1993. "Rational Learning Leads to Nash Equilibrium," Econometrica, Econometric Society, vol. 61(5), pages 1019-1045, September.
    6. Drew Fudenberg & David K. Levine, 2006. "Superstition and Rational Learning," American Economic Review, American Economic Association, vol. 96(3), pages 630-651, June.
    7. repec:bla:scandj:v:79:y:1977:i:2:p:210-26 is not listed on IDEAS
    8. Drew Fudenberg & David M. Kreps & David K. Levine, 2008. "On the Robustness of Equilibrium Refinements," World Scientific Book Chapters, in: Drew Fudenberg & David K Levine (ed.), A Long-Run Collaboration On Long-Run Games, chapter 5, pages 67-93, World Scientific Publishing Co. Pte. Ltd..
    9. Alberto Alesina & George-Marios Angeletos, 2005. "Fairness and Redistribution," American Economic Review, American Economic Association, vol. 95(4), pages 960-980, September.
    10. Jean-Pascal Benassy, 1975. "Neo-Keynesian Disequilibrium Theory in a Monetary Economy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 42(4), pages 503-523.
    11. Fudenberg, Drew & Kreps, David M., 1995. "Learning in extensive-form games I. Self-confirming equilibria," Games and Economic Behavior, Elsevier, vol. 8(1), pages 20-55.
    12. Fudenberg, Drew & Levine, David K, 1993. "Self-Confirming Equilibrium," Econometrica, Econometric Society, vol. 61(3), pages 523-545, May.
    13. Kalai, E & Neme, A, 1992. "The Strength of a Little Perfection," International Journal of Game Theory, Springer;Game Theory Society, vol. 20(4), pages 335-355.
    14. Dekel, Eddie & Fudenberg, Drew, 1990. "Rational behavior with payoff uncertainty," Journal of Economic Theory, Elsevier, vol. 52(2), pages 243-267, December.
    15. In-Koo Cho & Noah Williams & Thomas J. Sargent, 2002. "Escaping Nash Inflation," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 69(1), pages 1-40.
    16. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, vol. 1(2), pages 170-190, June.
    17. Noldeke Georg & Samuelson Larry, 1993. "An Evolutionary Analysis of Backward and Forward Induction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 425-454, July.
    18. William Poole & Robert H. Rasche, 2002. "Flation," Review, Federal Reserve Bank of St. Louis, vol. 84(Nov), pages 1-6.
      • William Poole, 2002. "Flation," Speech 49, Federal Reserve Bank of St. Louis.
    19. Lucas, Robert Jr, 1976. "Econometric policy evaluation: A critique," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 1(1), pages 19-46, January.
    20. Thomas Sargent & Noah Williams & Tao Zha, 2006. "Shocks and Government Beliefs: The Rise and Fall of American Inflation," American Economic Review, American Economic Association, vol. 96(4), pages 1193-1224, September.
    21. Drew Fudenberg & David K. Levine, 1996. "Measuring Subject’s Losses in Experimental Games," Levine's Working Paper Archive 370, David K. Levine.
    22. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Gilles Saint-Paul, 2013. "Economic Science And Political Influence," Journal of the European Economic Association, European Economic Association, vol. 11(5), pages 1004-1031, October.
    2. Ellison, Martin & Scott, Andrew, 2013. "Learning and price volatility in duopoly models of resource depletion," Journal of Monetary Economics, Elsevier, vol. 60(7), pages 806-820.
    3. Lars P. Hansen & Thomas J. Sargent, 2016. "Sets of Models and Prices of Uncertainty," NBER Working Papers 22000, National Bureau of Economic Research, Inc.
    4. Norman, Thomas W.L., 2015. "Learning, hypothesis testing, and rational-expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 90(C), pages 93-105.
    5. Invernizzi, Giovanna M. & Miller, Joshua B. & Coen, Tommaso & Dufwenberg, Martin & Oliveira, Luiz Edgard R., 2021. "Tra i Leoni: Revealing the preferences behind a superstition," Journal of Economic Psychology, Elsevier, vol. 82(C).
    6. Pierpaolo Battigalli & Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Thomas Sargent, 2016. "A Framework for the Analysis of Self-Confirming Policies," Working Papers 573, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
    7. Casey Rothschild & Florian Scheuer, 2013. "Redistributive Taxation in the Roy Model," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 128(2), pages 623-668.
    8. Florian Scheuer & Casey Rothschild, 2011. "Rent Seeking and Optimal Taxation," 2011 Meeting Papers 1262, Society for Economic Dynamics.
    9. Ohanian, Lee E. & Prescott, Edward C. & Stokey, Nancy L., 2009. "Introduction to dynamic general equilibrium," Journal of Economic Theory, Elsevier, vol. 144(6), pages 2235-2246, November.
    10. David K Levine, 2009. "Is Behavioral Economics Doomed?," Levine's Working Paper Archive 814577000000000274, David K. Levine.
    11. Hansen, Lars Peter & Sargent, Thomas J., 2021. "Macroeconomic uncertainty prices when beliefs are tenuous," Journal of Econometrics, Elsevier, vol. 223(1), pages 222-250.
    12. Gershman, Boris, 2015. "The economic origins of the evil eye belief," Journal of Economic Behavior & Organization, Elsevier, vol. 110(C), pages 119-144.
    13. David Levine, 2011. "Neuroeconomics?," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 58(3), pages 287-305, September.
    14. Elvio Accinelli & Edgar J. Sanchez Carrera, 2012. "The Evolutionary Game Of Poverty Traps," Manchester School, University of Manchester, vol. 80(4), pages 381-400, July.
    15. Xiao Luo & Xuewen Qian & Yang Sun, 2021. "The algebraic geometry of perfect and sequential equilibrium: an extension," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(2), pages 579-601, March.
    16. Manvir Singh & Pascal Boyer & Leeson, Peter T & Mckay Ryan & Bentall, Richard P & Sarah Peacey & Ruth Mace & Schimmelpfennig, Robin & Muthukrishna, Michael, 2021. "Magic, explanations, and evil: the origins and design of witches and sorcerers," Post-Print hal-03256601, HAL.
    17. Drew Fudenberg & David K Levine, 2016. "Whither Game Theory?," Levine's Working Paper Archive 786969000000001307, David K. Levine.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. repec:hrv:faseco:4729511 is not listed on IDEAS
    2. Drew Fudenberg & David K. Levine, 2006. "Superstition and Rational Learning," American Economic Review, American Economic Association, vol. 96(3), pages 630-651, June.
    3. Dekel, Eddie & Fudenberg, Drew & Levine, David K., 1999. "Payoff Information and Self-Confirming Equilibrium," Journal of Economic Theory, Elsevier, vol. 89(2), pages 165-185, December.
    4. Dekel, Eddie & Siniscalchi, Marciano, 2015. "Epistemic Game Theory," Handbook of Game Theory with Economic Applications,, Elsevier.
    5. Clark, Daniel & Fudenberg, Drew & He, Kevin, 2022. "Observability, dominance, and induction in learning models," Journal of Economic Theory, Elsevier, vol. 206(C).
    6. Ignacio Esponda & Demian Pouzo, 2014. "Berk-Nash Equilibrium: A Framework for Modeling Agents with Misspecified Models," Papers 1411.1152, arXiv.org, revised Nov 2019.
    7. Schipper, Burkhard C., 2021. "Discovery and equilibrium in games with unawareness," Journal of Economic Theory, Elsevier, vol. 198(C).
    8. Yoo, Seung Han, 2014. "Learning a population distribution," Journal of Economic Dynamics and Control, Elsevier, vol. 48(C), pages 188-201.
    9. Mario Gilli, 2002. "Rational Learning in Imperfect Monitoring Games," Working Papers 46, University of Milano-Bicocca, Department of Economics, revised Mar 2002.
    10. Dekel, Eddie & Fudenberg, Drew & Levine, David K., 2004. "Learning to play Bayesian games," Games and Economic Behavior, Elsevier, vol. 46(2), pages 282-303, February.
    11. Drew Fudenberg & David K Levine, 2005. "Learning and Belief Based Trading," Levine's Working Paper Archive 618897000000000975, David K. Levine.
    12. Joseph Greenberg & Sudheer Gupta & Xiao Luo, 2003. "Towering over Babel: Worlds Apart but Acting Together," IEAS Working Paper : academic research 03-A009, Institute of Economics, Academia Sinica, Taipei, Taiwan.
    13. Timothy Cogley & Thomas J. Sargent, 2005. "Drift and Volatilities: Monetary Policies and Outcomes in the Post WWII U.S," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 8(2), pages 262-302, April.
    14. Fudenberg, Drew & Kamada, Yuichiro, 2018. "Rationalizable partition-confirmed equilibrium with heterogeneous beliefs," Games and Economic Behavior, Elsevier, vol. 109(C), pages 364-381.
    15. Norman, Thomas W.L., 2015. "Learning, hypothesis testing, and rational-expectations equilibrium," Games and Economic Behavior, Elsevier, vol. 90(C), pages 93-105.
    16. Yaron Azrieli, 2009. "On pure conjectural equilibrium with non-manipulable information," International Journal of Game Theory, Springer;Game Theory Society, vol. 38(2), pages 209-219, June.
    17. Gamba, Astrid & Regner, Tobias, 2019. "Preferences-dependent learning in the centipede game: The persistence of mistrust," European Economic Review, Elsevier, vol. 120(C).
    18. Dubey, Pradeep & Haimanko, Ori, 2004. "Learning with perfect information," Games and Economic Behavior, Elsevier, vol. 46(2), pages 304-324, February.
    19. Atsushi Kajii & Stephen Morris, 1997. "The Robustness of Equilibria to Incomplete Information," Econometrica, Econometric Society, vol. 65(6), pages 1283-1310, November.
    20. Takashi Kunimoto, 2006. "The Robustness Of Equilibrium Analysis: The Case Of Undominated Nash Equilibrium," Departmental Working Papers 2006-26, McGill University, Department of Economics.
    21. Pierpaolo Battigalli & Simone Cerreia-Vioglio & Fabio Maccheroni & Massimo Marinacci & Thomas Sargent, 2016. "A Framework for the Analysis of Self-Confirming Policies," Working Papers 573, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hrv:faseco:4686412. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Office for Scholarly Communication (email available below). General contact details of provider: https://edirc.repec.org/data/deharus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.