Learning to be prepared

Behavioral economics provides several motivations for the common observation that agents appear somewhat unwilling to deviate from recent choices. More recent choices can be more salient than other choices, or more readily available in the agent's mind. Alternatively, agents may have formed habits, or use rules of thumb. This paper provides discrete–time adjustment processes for strategic games in which players display such a bias towards recent choices. In addition, players choose best replies to beliefs supported by observed play in the recent past. We characterize the limit behavior of these processes by showing that they eventually settle down in minimal prep sets (Voorneveld (2004)).