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Cursed Sequential Equilibrium

Fong, Meng-Jhang and Lin, Po-Hsuan and Palfrey, Thomas R. (2023) Cursed Sequential Equilibrium. Social Science Working Paper, 1465. California Institute of Technology , Pasadena, CA. (Unpublished)

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This paper develops a framework to extend the strategic form analysis of cursed equilibrium (CE) developed by Eyster and Rabin (2005) to multi-stage games. The approach uses behavioral strategies rather than normal form mixed strategies, and imposes sequential rationality. We define cursed sequential equilibrium (CSE) and compare it to sequential equilibrium and standard normal-form CE. We provide a general characterization of CSE and establish its properties. We apply CSE to five applications in economics and political science. These applications illustrate a wide range of differences between CSE and Bayesian Nash equilibrium or CE: in signaling games; games with preplay communication; reputation building; sequential voting; and the dirty faces game where higher order beliefs play a key role. A common theme in several of these applications is showing how and why CSE implies systematically different behavior than Bayesian Nash equilibrium in dynamic games of incomplete information with private values, while CE coincides with Bayesian Nash equilibrium for such games.

Item Type:Report or Paper (Working Paper)
Lin, Po-Hsuan0000-0003-3437-1734
Palfrey, Thomas R.0000-0003-0769-8109
Additional Information:Grants from the National Science Foundation (SES-0617820) and the Gordon and Betty Moore Foundation (1158) supported this research. We are grateful to Shengwu Li and Shani Cohen for recent correspondence that helped to clarify the differences between the CSE and SCE approaches to the generalization of cursed equilibrium for dynamic games. We thank participants of the Caltech Proseminar and Colin Camerer for comments and Matthew Rabin for earlier discussions on the subject during his visit at Caltech as a Moore Distinguished Scholar.
Group:Social Science Working Papers
Funding AgencyGrant Number
Gordon and Betty Moore FoundationGBMF1158
Subject Keywords:Multi-stage Games, Private Information, Cursed Equilibrium, Learning
Series Name:Social Science Working Paper
Issue or Number:1465
Classification Code:JEL Classification Numbers: C72, D83, D90
Record Number:CaltechAUTHORS:20230127-215732171
Persistent URL:
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:118966
Deposited By: Mary Martin
Deposited On:27 Jan 2023 23:24
Last Modified:12 Apr 2023 23:17

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