Forthcoming : Endogenous clustering and analogy-based expectation equilibrium

Journal article: Normal-form two-player games are categorized by players into K analogy classes so as to minimize the prediction error about the behavior of the opponent. This results in Clustered Analogy-Based Expectation Equilibria in which strategies are analogy-based expectation equilibria given the analogy partitions and analogy partitions minimize the prediction errors given the strategies. We distinguish between environments with self-repelling analogy partitions in which some mixing over partitions is required and environments with self-attractive partitions in which several analogy partitions can arise, thereby suggesting new channels of belief heterogeneity and equilibrium multiplicity. Various economic applications are discussed.

Author(s)

Philippe Jehiel, Giacomo Weber

Journal
  • Review of Economic Studies
Date of publication
  • 2025
Keywords JEL
D44 D82 D90
Keywords
  • Analogy-based expectation equilibrium
  • Prototype theory
  • K-means clustering
Version
  • 1