We develop convergence results for and applications of the Bayesian best response dynamic. We begin by establishing global convergence theorems for three classes of Bayesian games. Next, we use these convergence theorems to demonstrate global stability of Bayesian equilibrium in a canonical model of highway congestion. Finally, we study the evolutionary stability of purified equilibria, providing simple sufficient conditions for stability and instability. In particular, we show that every Nash equilibrium of every normal form game can be purified in a stable fashion, but that there are classes of normal form games whose Nash equilibria cannot be purified in an unstable fashion.
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A preference structure is constructed, grounded in psychological evidence, with well-being a function of the consumption level and the growth of the variety of goods consumed. Such preferences are analyzed in an endogenous variety growth model. The implications are consistent with the increase in income and the variety of goods consumed in developed economies in the post-war period that have not been accompanied by an increase in reported well-being. Moreover, the results suggest a connection between the stagnancy of reported well-being and diminishing returns in the technological change, despite an increase in the variety of goods available over time.
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This paper provides an introduction to how knowledge is modeled in economic contexts and the role played by the concepts of knowledge and common knowledge in economic analysis.
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