Rationalization and Incomplete Information

Pierpaolo Battigalli () and Marciano Siniscalchi
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Marciano Siniscalchi: Northwestern University and Princeton University

The B.E. Journal of Theoretical Economics, 2003, vol. advances.3, issue 1

Abstract:

We analyze a family of extensive-form solution procedures for games with incomplete information that do not require the specification of an epistemic type space a la Harsanyi, but can accommodate a (commonly known) collection of explicit restrictions D on first-order beliefs. For any fixed D we obtain a solution called D-rationalizability.

In static games, D-rationalizability characterizes the set of outcomes (combinations of payoff types and strategies) that may occur in any Bayesian equilibrium model consistent with D; these are precisely the outcomes consistent with common certainty of rationality and of the restrictions D. Hence, our approach to the analysis of incomplete-information games is consistent with Harsanyi's, and it may be viewed as capturing the robust implications of Bayesian equilibrium analysis.

In dynamic games, D-rationalizability yields a forward-induction refinement of this set of Bayesian equilibrium outcomes. Focusing on the restriction that first-order beliefs be consistent with a given distribution on terminal nodes, we obtain a refinement of self-confirming equilibrium. In signalling games, this refinement coincides with the Iterated Intuitive Criterion.

Keywords: Incomplete Information; Rationalizability; Bayesian Equilibrium; Self-Confirming Equilibrium; Iterated Intuitive Criterion (search for similar items in EconPapers)
JEL-codes: C72 D72 (search for similar items in EconPapers)
Date: 2003
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Working Paper: Rationalization and Incomplete Information (2002)
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Persistent link: http://EconPapers.repec.org/RePEc:bpj:bejtec:v:advances.3:y:2003:i:1:n:3

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