Common reasoning in games: a resolution of the paradoxes of ‘common knowledge of rationality’

Robin Cubitt and Robert Sugden

No 2005-17, Discussion Papers from The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham

Abstract: The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximization with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning in which the analogue of common knowledge is provability in common reason. We show that a range of standards of decision-theoretic practical rationality can be assumed without inconsistency to be provable in common reason in models of this class. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.

JEL-codes: C72 (search for similar items in EconPapers)
Date: 2005-09
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Persistent link: https://EconPapers.repec.org/RePEc:not:notcdx:2005-17

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