Ergodic equilibria in stochastic sequential games

Many dynamic economic situations, including certain markets, can be fruitfully modeled as binary-action stochastic sequential games. Such games have a state variable, which in the case of a market might be the inventory of the good waiting for sale. Conditional on the state, players choose in sequ...

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Auteurs principaux: Large, J, Norman, T
Format: Working paper
Publié: University of Oxford 2008
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author Large, J
Norman, T
author_facet Large, J
Norman, T
author_sort Large, J
collection OXFORD
description Many dynamic economic situations, including certain markets, can be fruitfully modeled as binary-action stochastic sequential games. Such games have a state variable, which in the case of a market might be the inventory of the good waiting for sale. Conditional on the state, players choose in sequence whether to subtract from it (buy) or add to it (sell). Under two assmptions - called Self-Regulation and Separable Preferences - we can derive the existence of a stationary, sequential equilibrium where the state is geometrically ergodic and stationary, and the two actions are played in the ratio required to avoid drift. We solve for the equilibrium strategies of a particular class of uninformed player. In equilibrium, players must solve a potentially complicated forecasting problem, but our analysis used stationarity to bypass the details of this problem, thus avoiding the (often intractable) dynamic programming usually required to solve stochastic games. This simplification allows us to develop powerful invariance and welfare results, and to provide a microfoundation for market-clearing price adjustment.
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spelling oxford-uuid:480fd27d-36fc-4751-890c-813a0ae1e2d12022-03-26T15:23:27ZErgodic equilibria in stochastic sequential gamesWorking paperhttp://purl.org/coar/resource_type/c_8042uuid:480fd27d-36fc-4751-890c-813a0ae1e2d1Bulk import via SwordSymplectic ElementsUniversity of Oxford2008Large, JNorman, TMany dynamic economic situations, including certain markets, can be fruitfully modeled as binary-action stochastic sequential games. Such games have a state variable, which in the case of a market might be the inventory of the good waiting for sale. Conditional on the state, players choose in sequence whether to subtract from it (buy) or add to it (sell). Under two assmptions - called Self-Regulation and Separable Preferences - we can derive the existence of a stationary, sequential equilibrium where the state is geometrically ergodic and stationary, and the two actions are played in the ratio required to avoid drift. We solve for the equilibrium strategies of a particular class of uninformed player. In equilibrium, players must solve a potentially complicated forecasting problem, but our analysis used stationarity to bypass the details of this problem, thus avoiding the (often intractable) dynamic programming usually required to solve stochastic games. This simplification allows us to develop powerful invariance and welfare results, and to provide a microfoundation for market-clearing price adjustment.
spellingShingle Large, J
Norman, T
Ergodic equilibria in stochastic sequential games
title Ergodic equilibria in stochastic sequential games
title_full Ergodic equilibria in stochastic sequential games
title_fullStr Ergodic equilibria in stochastic sequential games
title_full_unstemmed Ergodic equilibria in stochastic sequential games
title_short Ergodic equilibria in stochastic sequential games
title_sort ergodic equilibria in stochastic sequential games
work_keys_str_mv AT largej ergodicequilibriainstochasticsequentialgames
AT normant ergodicequilibriainstochasticsequentialgames