Frederik Schwerter is presenting at the VCEE Seminar

Frederik Schwerter (University of Cologne) talks about "Associative Memory and Belief Formation (with Benjamin Enke und Florian Zimmermann)" on March 17 2023 at 10.30am.

Title: Beliefs in Repeated Games
Available at: people.cess.fas.nyu.edu/frechette/print/Aoyagi_2022a.pdf
Website: cess.nyu.edu/frechette

Abstract:
This paper uses a laboratory experiment to study beliefs and their relationship to action and strategy choices in finitely and indefinitely repeated prisoners' dilemma games. We find subjects' beliefs about the other player's action are generally accurate despite some small systematic deviations corresponding to early pessimism in the indefinitely repeated game and late optimism in the finitely repeated game. The data reveals a close link between beliefs and actions that differs between the two games. In particular, the same history of play is associated with different beliefs, and the same beliefs with different action choices in each game. Moreover, we find beliefs anticipate the evolution of behavior within a supergame, changing in response to the history of play (in both games) and the number of rounds played (in the finitely repeated game). We then use the subjects' beliefs over actions in each round to identify their beliefs over supergame strategies played by the other player. We find these beliefs correctly capture the different classes of strategies used in each game. Importantly, subjects using different strategies have different beliefs, and for the most part, strategies are subjectively rational given beliefs. The results also suggest subjects tend to underestimate the likelihood that others use less cooperative strategies. In the finitely repeated game, this helps explain the slow unravelling of cooperation. In the indefinitely repeated game, persistence of heterogeneity in beliefs underpins the difficulty of resolving equilibrium selection.