Sophisticated EWA Learning and Strategic Teaching in Repeated Games

Abstract

Most learning models assume players are adaptive (i.e., they respond only to their own previous experience and ignore others' payoff information) and behavior is not sensitive to the way in which players are matched. Empirical evidence suggests otherwise. In this paper, we extend our adaptive experience-weighted attraction (EWA) learning model to capture sophisticated learning and strategic teaching in repeated games. The generalized model assumes there is a mixture of adaptive learners and sophisticated players. An adaptive learner adjusts his behavior the EWA way. A sophisticated player rationally best-responds to her forecasts of all other behaviors. A sophisticated player can be either myopic or farsighted. A farsighted player develops multiple-period rather than single-period forecasts of others' behaviors and chooses to "teach" the other players by choosing a strategy scenario that gives her the highest discounted net present value. We estimate the model using data from p-beauty contests and repeated trust games with incomplete information. The generalized model is better than the adaptive EWA model in describing and predicting behavior. Including teaching also allows an empirical learning-based approach to reputation formation which predicts better than a quantal-response extension of the standard type-based approach.

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