American Economic Review
ISSN 0002-8282 (Print) | ISSN 1944-7981 (Online)
Cursed Sequential Equilibrium
American Economic Review
(pp. 2616–58)
Abstract
This paper develops a framework to extend the strategic form analysis of cursed equilibrium (CE) developed by Eyster and Rabin (2005) to multistage games. The approach uses behavioral strategies rather than normal form mixed strategies and imposes sequential rationality. We define and characterize properties of cursed sequential equilibrium (CSE) and apply it to four canonical economic applications: signaling games, reputation building, durable goods monopoly, and the dirty faces game. These applications illustrate various implications of CSE, show how and why it differs from sequential equilibrium and CE, and provide evidence from laboratory experiments that support the empirical relevance of CSE.Citation
Fong, Meng-Jhang, Po-Hsuan Lin, and Thomas R. Palfrey. 2025. "Cursed Sequential Equilibrium." American Economic Review 115 (8): 2616–58. DOI: 10.1257/aer.20231130Additional Materials
JEL Classification
- C72 Noncooperative Games
- C73 Stochastic and Dynamic Games; Evolutionary Games; Repeated Games
- D42 Market Structure, Pricing, and Design: Monopoly
- D82 Asymmetric and Private Information; Mechanism Design
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness