Strategic learning in games with incomplete information

In this paper, strategic interactions between two decision makers in a signaling game are studied, where incomplete information and misperception are involved. In this game player A has private information, and sends a signal to player B at the start of the game. B would then take an action based on the message he receives and the interpretation he makes to such a message. Because of the conflict interests, both decision makers have to think about all possible perception and misperception. As one varies those hypotheses, one varies the optimal responses of B, and hence, the incentives of A to send various messages. The noncooperative equilibria, obtained by using various solution concept, are interpreted as a learning process, where the decision makers may revise their perceptions about the opponent. The hypergame transitory and persistent stability is used to examine the perceived equilibriums, which explains an “out-of-equilibrium” action taken by a player in a course of a game, and why a rational decision maker may appear to be irrational