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Stochastic game
About: Stochastic game is a research topic. Over the lifetime, 9493 publications have been published within this topic receiving 202664 citations.
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TL;DR: In this paper, a class of procedures that assign observations to categories, and prescribe a simple randomized variation of fictitious play within each category, are discussed, and conditionally consistent, in the sense that yielding almost as high a time-average payoff as could be obtained if the player chose knowing the conditional distributions of actions given categories.
172 citations
TL;DR: In this paper, an algorithm is described that finds optimal stationary strategies in dynamic two-person conflicts with perfect information, deterministic transitions, finite sets of positions, and time-averaged limiting integral payoff.
Abstract: An algorithm is described that finds optimal stationary strategies in dynamic two-person conflicts with perfect information, deterministic transitions, finite sets of positions, and time-averaged limiting integral payoff.
172 citations
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TL;DR: In this paper, the authors present an economic experiment on network formation, in which subjects can decide to form links to one another, and the main results show that the prediction based on Nash and strict Nash equilibrium works well in the 1-way flow model but largely fails in the 2-way Flow model.
Abstract: We present an economic experiment on network formation, in which subjects can decide to form links to one another. Direct links are costly but being connected is valuable. The game-theoretic basis for our experiment is the model of Bala and Goyal (2000). They distinguish between two scenarios regarding the flow of benefits through a network, the so-called 1-way and 2-way flow model. Our main results show that the prediction based on Nash and strict Nash equilibrium works well in the 1-way flow model but largely fails in the 2-way flow model. We observe a strong learning dynamic in the 1-way flow model but less so in the 2-way flow model. Finally, costs of a direct link have a positive impact on the occurrence of (strict) Nash networks in the 1-way flow model but a negative impact in the 2-way flow model. In our discussion on possible explanations for these results we focus on strategic asymmetry and asymmetry with respect to payoffs. We find that the latter asymmetry, i.e. payoff inequity, plays an important role in the network formation process.
171 citations
TL;DR: In this article, the authors show that the rate of convergence depends on the smoothness of option payoff functions, and is much lower than commonly believed because option payoff function are often of all-or-nothing type and are not continuously differentiable.
Abstract: This paper characterizes the rate of convergence of discrete-time multinomial option prices. We show that the rate of convergence depends on the smoothness of option payoff functions, and is much lower than commonly believed because option payoff functions are often of all-or-nothing type and are not continuously differentiable. To improve the accuracy, we propose two simple methods, an adjustment of the discrete-time solution prior to maturity and smoothing of the payoff function, which yield solutions that converge to their continuous-time limit at the maximum possible rate enjoyed by smooth payoff functions. We also propose an intuitive approach that systematically derives multinomial models by matching the moments of a normal distribution. A highly accurate trinomial model also is provided for interest rate derivatives. Numerical examples are carried out to show that the proposed methods yield fast and accurate results.
171 citations
TL;DR: This work shows how the literal and metaphorical interpretations of information design unify a large body of existing work, including that on communication in games, Bayesian persuasion, and some of the own recent work on robust predictions in games of incomplete information.
Abstract: Fixing a game with uncertain payoffs, information design identifies the information structure and equilibrium that maximizes the payoff of an information designer. We show how this perspective unifies existing work, including that on communication in games (Myerson (1991)), Bayesian persuasion (Kamenica and Gentzkow (2011)) and some of our own recent work. Information design has a literal interpretation, under which there is a real information designer who can commit to the choice of the best information structure (from her perspective) for a set of participants in a game. We emphasize a metaphorical interpretation, under which the information design problem is used by the analyst to characterize play in the game under many different information structures.
171 citations