2020/05/04 by Gürdal Arslan, Serdar Yüksel, Arslan, Gürdal +1
Decision Sciences · Economics, Econometrics and Finance · #Decision-Making and Behavioral Economics #Economic theories and models #FOS: Mathematics #Game Theory and Applications #Optimization and Control (math.OC)
paper · pdf · doi:10.48550/arxiv.2005.01640
openalex publication_date 2020/05/04 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28
We present a subjective equilibrium notion (called "subjective equilibrium under beliefs of exogenous uncertainty (SEBEU)" for stochastic dynamic games in which each player chooses her decisions under the (incorrect) belief that a stochastic environment process driving the system is exogenous whereas in actuality this process is a solution of closed-loop dynamics affected by each individual player. Players observe past realizations of the environment variables and their local information. At equilibrium, if players are given the full distribution of the stochastic environment process as if it were an exogenous process, they would have no incentive to unilaterally deviate from their strategies. This notion thus generalizes what is known as the static price-taking behavior in prior literature to a stochastic and dynamic setup. We establish existence of SEBEU, study various properties and present explicit solutions. We obtain the ε-Nash equilibrium property of SEBEU when there are many players.