American Economic Journal:
Microeconomics
ISSN 1945-7669 (Print) | ISSN 1945-7685 (Online)
Higher-Order Beliefs and (Mis)learning from Prices
American Economic Journal: Microeconomics
(pp. 105–47)
Abstract
We study misperceptions of private-signal correlation in an incomplete-information Cournot duopoly game. Exaggerating the correlation between players' demand signals is beneficial when agents hold flexible beliefs about price elasticity but is harmful when their beliefs are dogmatically correct. For agents with flexible beliefs who learn elasticity by observing prices, correlation misperceptions indirectly distort behavior through elasticity misinference. If agents know the true elasticity, this learning channel is eliminated. Correlation misperceptions have opposite direct and indirect effects on behavior, so the presence of elasticity inference can reverse an error's viability.Citation
He, Kevin, and Jonathan Libgober. 2026. "Higher-Order Beliefs and (Mis)learning from Prices." American Economic Journal: Microeconomics 18 (3): 105–47. DOI: 10.1257/mic.20240346Additional Materials
JEL Classification
- C72 Noncooperative Games
- D21 Firm Behavior: Theory
- D43 Market Structure, Pricing, and Design: Oligopoly and Other Forms of Market Imperfection
- D81 Criteria for Decision-Making under Risk and Uncertainty
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness