Solving Two Sided Incomplete Information Games with Bayesian Iterative Conjectures Approach

Teng, Jimmy (2012): Solving Two Sided Incomplete Information Games with Bayesian Iterative Conjectures Approach.

Abstract

This paper proposes a way to solve two (and multiple) sided incomplete information games which generally generates a unique equilibrium. The approach uses iterative conjectures updated by game theoretic and Bayesian statistical decision theoretic reasoning. Players in the games form conjectures about what other players want to do, starting from first order uninformative conjectures and keep updating with games theoretic and Bayesian statistical decision theoretic reasoning until a convergence of conjectures is achieved. The resulting convergent conjectures and the equilibrium (which is named Bayesian equilibrium by iterative conjectures) they supported form the solution of the game. The paper gives two examples which show that the unique equilibrium generated by this approach is compellingly intuitive and insightful. The paper also solves an example of a three sided incomplete information simultaneous game.

• Item Type: MPRA Paper
• Language: English
• Keywords: new equilibrium concept, two and multiple sided incomplete information, iterative conjectures, convergence, Bayesian decision theory, Schelling point
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C70 - General; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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