Rationalizability, Observability and Common Knowledge
Antonio Penta () and
No 1106, Working Papers from Barcelona Graduate School of Economics
We study the strategic impact of players' higher order uncertainty over the observability of actions in general two-player games. More specifically, we consider the space of all belief hierarchies generated by the uncertainty over whether the game will be played as a static game or with perfect information. Over this space, we characterize the correspondence of a solution concept which represents the behavioral implications of Rationality and Common Belief in Rationality (RCBR), where `rationality' is understood as sequential whenever a player moves second. We show that such a correspondence is generically single-valued, and that its structure supports a robust refinement of rationalizability, which often has very sharp implications. For instance: (i) in a class of games which includes both zero-sum games with a pure equilibrium and coordination games with a unique efficient equilibrium, RCBR generically ensures efficient equilibrium outcomes; (ii) in a class of games which also includes other well-known families of coordination games, RCBR generically selects components of the Stackelberg pro les; (iii) if common knowledge is maintained that player 2's action is not observable (e.g., because 1 is commonly known to move earlier, etc.), in a class of games which includes of all the above RCBR generically selects the equilibrium of the static game most favorable to player 1.
Keywords: eductive coordination; extensive form uncertainty; first-mover advantage; Krpes hypothesis; higher order beliefs; Rationalizability; robustness; Stackelberg selections (search for similar items in EconPapers)
JEL-codes: C70 C71 C72 D82 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-mic
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Working Paper: Rationalizability, observability and common knowledge (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:bge:wpaper:1106
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