istance in Beliefs and Individually-Consistent Sequential Equilibrium

Gisèle Umbhauer and Arnaud Wolff

Working Papers of BETA from Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg

Abstract: The concept of Individually-Consistent Sequential-Equilibrium broadens the concept of Sequential Equilibrium by allowing players to have different beliefs on potential deviations. This heterogeneity spontaneously gives rise to a notion of distance between beliefs. Yet, studying distance between beliefs in a strategic context reveals to be intricate. Announced beliefs may be different from revealed beliefs and the meaning of distance depends on the role assigned to beliefs. If out-of-equilibrium beliefs help getting a larger payoff at equilibrium, then we might need to reconsider the traditional definition of sequential rationality: more than just requiring that players behave optimally at every information set given their beliefs and the strategies played by others players, we might additionally require that there does not exist another perturbation scheme that is individually-consistent and which provides higher payoffs to the players.

Keywords: AGM-Consistency; Distance in Beliefs; Heterogeneous Beliefs; Individually-Consistent-Sequential Equilibrium; Revealed Beliefs. (search for similar items in EconPapers)
JEL-codes: C72 (search for similar items in EconPapers)
Date: 2022
New Economics Papers: this item is included in nep-gth and nep-mic
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