Quarterly Journal of Economics Vol. 127 No. 4 2012
Reputation with Analogical Reasoning*
Abstract
We consider a repeated interaction between a long-run player and a sequence of short-run players, in which the long-run player may either be rational or may be a mechanical type who plays the same (possibly mixed) action in every stage game. We depart from the classical model in assuming that the short-run players make inferences by analogical reasoning, meaning that they correctly identify the average strategy of each type of long-run player, but do not recognize how this play varies across histories. Concentrating on 2 × 2 games, we provide a characterization of equilibrium payoffs, establishing a payoff bound for the rational long-run player that can be strictly larger than the familiar “Stackelberg” bound. We also provide a characterization of equilibrium behavior, showing that play begins with either a reputation-building or a reputation-spending stage (depending on parameters), followed by a reputation-manipulation stage.
- DOI
- 10.1093/qje/qjs031
- Volume
- 127
- Issue
- 4
- Pages
- 1927-1969
- Language
- en
- Sources
- bibtex:phds-export.bib openalex crossref