Collaborative Research: Sophisticated Learning and Strategic Teaching in Repeated Games

Ho #0078853

Our research addresses how people and organizations learn from experience

in strategic situations like bargaining, coordinating joint actions

(teamwork), choosing prices and features for new products, bidding in

auctions, etc. In previous research we discovered a mathematical formula

which explains how people appear to learn from experience, but the

numerical details of the formula (its 'parameters) seem to vary from

situation to situation, as if people are learning in different ways. We

therefore propose to explore why these parameters seem to vary. In

addition, most mathematical theories of strategic learning assume that

people only look back at past experiences. We also propose to extend these

theories to allow for people who realize that other people are learning

from experience, and are able to therefore outguess what others will do

based on what happened in the past. If players are 'sophisticated', in

this sense, it pays for them to take actions that are not perfect in the

near-term, to 'teach' other players who are learning to take actions which

will benefit the 'teachers' in the long-term. This teaching can be

beneficial for the teacher but bad for society (e.g., when firms scare

away innovative competitors by threatening illegal retaliation), or

beneficial for everyone (e.g., when firms reassure others that they can be

trusted). Our research develops a precise mathematical theory of how

sophisticated players behave and when it pays for them to teach. We use

the theory to explain observations from experiments and predicts whether

teaching will occur in new situations.