Collaborative Research: Sophisticated Learning and Strategic Teaching in Repeated Games

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Camerer #0078911Our research addresses how people and organizations learn from experiencein strategic situations like bargaining, coordinating joint actions(teamwork), choosing prices and features for new products, bidding inauctions, etc. In previous research we discovered a mathematical formulawhich explains how people appear to learn from experience, but thenumerical details of the formula (its "parameters) seem to vary fromsituation to situation, as if people are learning in different ways. Wetherefore propose to explore why these parameters seem to vary. Inaddition, most mathematical theories of strategic learning assume thatpeople only look back at past experiences. We also propose to extend thesetheories to allow for people who realize that other people are learningfrom experience, and are able to therefore outguess what others will dobased on what happened in the past. If players are "sophisticated", inthis sense, it pays for them to take actions that are not perfect in thenear-term, to "teach" other players who are learning to take actions whichwill benefit the "teachers" in the long-term. This teaching can bebeneficial for the teacher but bad for society (e.g., when firms scareaway innovative competitors by threatening illegal retaliation), orbeneficial for everyone (e.g., when firms reassure others that they can betrusted). Our research develops a precise mathematical theory of howsophisticated players behave and when it pays for them to teach. We usethe theory to explain observations from experiments and predicts whetherteaching will occur in new situations.