Economic Perspectives I

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Evolution Of Informed Agent's Belief

Note: in order to run the simulation referred to in this slide, go here, to the Java Applet version. You will be directed to download the latest version of the Java plug-in.

In this slide, we have recreated last slide's simulation, with a different graph. The graph displays the Probability that Informed Agent Chooses Dark Blue Action, in other words, the size of Informed Agent's dark-blue pie slice.

Note the graph's behavior during the first 12 time steps. Since Blue Action is true during the first 5 updates (i.e. 10 time steps), Informed Agent has an ever-stronger belief in its actual identity, consistent with the updates she receives. The updates, though, have imperfect precision. Thus, sometimes the Agent gets unlucky, and her growing belief of the truth falters for a step or two.

Still, by step 10 Informed Agent should be quite thoroughly convinced that Blue Action is the beneficial one. At step 11, however, the believed probability drops right back to 0.25. After all, the Agent knows as well as we do that every 5 updates the world changes in an unpredictable manner, and she has to start her search for truth all over again.

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