A Structure Theorem for Rationalizability with Application to Robust Predictions of RefinementsJonathan Weinstein and Muhamet Yildiz () Econometrica, 2007, vol. 75, issue 2, pages 365-400 Abstract: Rationalizability is a central solution concept of game theory. Economic models often have many rationalizable outcomes, motivating economists to use refinements of rationalizability, including equilibrium refinements. In this paper we try to achieve a general understanding of when this multiplicity occurs and how one should deal with it. Assuming that the set of possible payoff functions and belief structures is sufficiently rich, we establish a revealing structure of the correspondence of beliefs to sets of rationalizable outcomes. We show that, for any rationalizable action a of any type, we can perturb the beliefs of the type in such a way that a is uniquely rationalizable for the new type. This unique outcome will be robust to further small changes. When multiplicity occurs, then we are in a "knife-edge" case, where the unique rationalizable outcome changes, sandwiched between open sets of types where each of the rationalizable actions is uniquely rationalizable. As an immediate application of this result, we characterize, for any refinement of rationalizability, the predictions that are robust to small misspecifications of interim beliefs. These are only those predictions that are true for all rationalizable strategies, that is, the predictions that could have been made without the refinement. Copyright The Econometric Society 2007. Date: 2007 Downloads: (external link) Related works: Ordering information: This journal article can be ordered from Access Statistics for this article Econometrica is edited by Stephen Morris More articles in Econometrica from Econometric Society |
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