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Experimenting with the Transition Rule in Dynamic Games

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  • Alistair Wilson

Abstract

In dynamic environments where the strategic setting evolves across time the specific rule governing the transitions can substantially alter the incentives that agents face. This is particularly true when history-dependent strategies are used. In a laboratory study we examine whether subjects respond to the transition rule and internalize its effects on continuation values. Our main comparison is between an endogenous transition, where future states directly depend on current choices, and exogenous transitions, where the future environment is random and independent of current choices. Our evidence shows that subjects readily internalize the effect of the dynamic game transition rule on their incentives, in line with theoretical predictions.

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  • Alistair Wilson, 2018. "Experimenting with the Transition Rule in Dynamic Games," Working Paper 6533, Department of Economics, University of Pittsburgh.
    • Handle: RePEc:pit:wpaper:6533
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    Cited by:

    1. Tobias Salz & Emanuel Vespa, 2020. "Estimating dynamic games of oligopolistic competition: an experimental investigation," RAND Journal of Economics, RAND Corporation, vol. 51(2), pages 447-469, June.
    2. Ghidoni, Riccardo & Suetens, Sigrid, 2019. "Empirical Evidence on Repeated Sequential Games," Other publications TiSEM ff3a441f-e196-4e45-ba59-c, Tilburg University, School of Economics and Management.
    3. Masaki Aoyagi & Guillaume Frechette & Sevgi Yuksel, 2021. "Beliefs in Repeated Games," ISER Discussion Paper 1119rr, Institute of Social and Economic Research, Osaka University, revised May 2022.
    4. Appelbaum, Elie & Katz, Eliakim, 2022. "Bonding by guilt: A resolution of the finite horizon prisoners’ dilemma," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 100(C).
    5. Johannes Hoelzemann & Nicolas Klein, 2021. "Bandits in the lab," Quantitative Economics, Econometric Society, vol. 12(3), pages 1021-1051, July.
    6. Emanuel Vespa & Taylor Weidman & Alistair J. Wilson, 2021. "Testing Models of Strategic Uncertainty: Equilibrium Selection in Repeated Games," Papers 2101.05900, arXiv.org.
    7. Kartal, Melis & Müller, Wieland & Tremewan, James, 2021. "Building trust: The costs and benefits of gradualism," Games and Economic Behavior, Elsevier, vol. 130(C), pages 258-275.

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