Redefinition of Belief Distorted Nash Equilibria for the Environment of Dynamic Games with Probabilistic Beliefs

Abstract

In this paper, a new concept of equilibrium in dynamic games with incomplete or distorted information is introduced. In the games considered, players have incomplete information about crucial aspects of the game and formulate beliefs about the probabilities of various future scenarios. The concept of belief distorted Nash equilibrium combines optimization based on given beliefs and self-verification of those beliefs. Existence and equivalence theorems are proven, and this concept is compared to existing ones. Theoretical results are illustrated using several examples: extracting a common renewable resource, a large minority game, and a repeated Prisoner’s Dilemma.