Working Papers
By Year:
Paper #  Author  Title  

10007 
George J. Mailath Wojciech Olszewski 
"Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring", Third Version  
We prove the perfectmonitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almostperfect almostpublic monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highlycorrelated private. Download Paper


08027 
George J. Mailath Wojciech Olszewski 
"Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring", Second Version  
A strategy profile in a repeated game has bounded recall L if play under the profile after two distinct histories that agree in the last L periods is equal. Mailath and Morris (2002, 2006) proved that any strict equilibrium in boundedrecall strategies of a game with full support public monitoring is robust to all perturbations of the monitoring structure towards private monitoring (the case of almostpublic monitoring), while strict equilibria in unboundedrecall strategies are typically not robust. We prove the perfectmonitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. As a consequence, the perfect monitoring folk theorem is shown to be behaviorally robust under almostperfect almostpublic monitoring. That is, the same specification of behavior continues to be an equilibrium when the monitoring is perturbed from perfect to highlycorrelated private. Download Paper


08019 
George J. Mailath Wojciech Olszewski 
"Folk Theorems with Bounded Recall under (Almost) Perfect Monitoring"  
A strategy profile in a repeated game has L bounded recall if play under the profile after two distinct histories that agree in the last L periods is equal. Mailath and Morris (2002, 2006) proved that any strict equilibrium in boundedrecall strategies of a game with full support public monitoring is robust to all perturbations of the monitoring structure towards private monitoring (the case of "almostpublic monitoring"), while strict equilibria in unboundedrecall strategies are typically not robust. We prove that the perfectmonitoring folk theorem continues to hold when attention is restricted to strategies with bounded recall and the equilibrium is essentially required to be strict. The general result uses calendar time in an integral way in the construction of the strategy profile. If the players' action spaces are sufficiently rich, then the strategy profile can be chosen to be independent of calendar time. Either result can then be used to prove a folk theorem for repeated games with almostperfect almostpublic monitoring. Download Paper


08016 
Wojciech Olszewski Alvaro Sandroni 
"Falsifiability"  
Theories can be produced by experts seeking a reputation for having knowledge. Hence, a tester could anticipate that theories may have been strategically produced by uninformed experts who want to pass an empirical test. We show that, with no restriction on the domain of permissible theories, strategic experts cannot be discredited for an arbitrary but given number of periods, no matter which test is used (provided that the test does not reject the actual datagenerating process). Natural ways around this impossibility result include 1) assuming that unbounded data sets are available and 2) restricting the domain of permissible theories (opening the possibility that the actual datagenerating process is rejected out of hand). In both cases, it is possible to dismiss strategic experts, but only to a limited extent. These results show significant limits on what data can accomplish when experts produce theories strategically. Download Paper


08015 
Wojciech Olszewski Alvaro Sandroni 
"Strategic Manipulation of Empirical Tests"  
Theories can be produced by experts seeking a reputation for having knowledge. Hence, a tester could anticipate that theories may have been strategically produced by uninformed experts who want to pass an empirical test. We show that, with no restriction on the domain of permissible theories, strategic experts cannot be discredited for an arbitrary but given number of periods, no matter which test is used (provided that the test does not reject the actual datagenerating process). Natural ways around this impossibility result include 1) assuming that unbounded data sets are available and 2) restricting the domain of permissible theories (opening the possibility that the actual datagenerating process is rejected out of hand). In both cases, it is possible to dismiss strategic experts, but only to a limited extent. These results show significant limits on what data can accomplish when experts produce theories strategically. Download Paper


08014 
Wojciech Olszewski Alvaro Sandroni 
"Manipulability of FutureIndependent Tests"  
The difficulties in properly anticipating key economic variables may encourage decision makers to rely on experts’ forecasts. Professional forecasters, however, may not be reliable and so their forecasts must be empirically tested. This may induce experts to forecast strategically in order to pass the test. A test can be ignorantly passed if a false expert, with no knowledge of the data generating process, can pass the test. Many tests that are unlikely to reject correct forecasts can be ignorantly passed. Tests that cannot be ignorantly passed do exist, but these tests must make use of predictions contingent on data not yet observed at the time the forecasts are rejected. Such tests cannot be run if forecasters report only the probability of the next period’s events on the basis of the actually observed data. This result shows that it is difficult to dismiss false, but strategic, experts who know how theories are tested. This result also shows an important role that can be played by predictions contingent on data not yet observed. Download Paper
