Learning and Equilibrium Drew Fudenberg1 and David K. Levine2 1Department of Economics, Harvard University, Cambridge, Massachusetts; email:
[email protected] 2Department of Economics, Washington University of St. Louis, St. Louis, Missouri; email:
[email protected] Annu. Rev. Econ. 2009. 1:385–419 Key Words First published online as a Review in Advance on nonequilibrium dynamics, bounded rationality, Nash equilibrium, June 11, 2009 self-confirming equilibrium The Annual Review of Economics is online at by 140.247.212.190 on 09/04/09. For personal use only. econ.annualreviews.org Abstract This article’s doi: The theory of learning in games explores how, which, and what 10.1146/annurev.economics.050708.142930 kind of equilibria might arise as a consequence of a long-run non- Annu. Rev. Econ. 2009.1:385-420. Downloaded from arjournals.annualreviews.org Copyright © 2009 by Annual Reviews. equilibrium process of learning, adaptation, and/or imitation. If All rights reserved agents’ strategies are completely observed at the end of each round 1941-1383/09/0904-0385$20.00 (and agents are randomly matched with a series of anonymous opponents), fairly simple rules perform well in terms of the agent’s worst-case payoffs, and also guarantee that any steady state of the system must correspond to an equilibrium. If players do not ob- serve the strategies chosen by their opponents (as in extensive-form games), then learning is consistent with steady states that are not Nash equilibria because players can maintain incorrect beliefs about off-path play. Beliefs can also be incorrect because of cogni- tive limitations and systematic inferential errors.