Prudent Rationalizability in Generalized Extensive-Form Games

Burkhard Schipper, Martin Meier and Aviad Heifetz
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Aviad Heifetz: Department of Economics, University of California Davis

No 287, Working Papers from University of California, Davis, Department of Economics

Abstract: We define an extensive-form analogue of iterated admissibility, called Prudent Rationalizability (PR). In each round of the procedure, for each information set of a player a surviving strategy of hers is required to be rational vis-a-vis a belief system with a full-support belief on the opponents' previously surviving strategies that reach that information set. Somewhat surprisingly, prudent rationalizable strategies may not refine the set of Extensive-Form Rationalizable (EFR) strategies (Pearce 1984). However, we prove that the paths induced by PR strategy-profiles (weakly) refine the set of paths induced by EFR strategies. PR applies also to generalized extensive-form games which model mutual unawareness of actions (Heifetz, Meier and Schipper, 2011a). We demonstrate the applicability of PR in the analysis of verifiable communication, and show that it yields the same, full information unraveling prediction as does the unique sequential equilibrium singled out by Milgrom and Roberts (1986); yet, we also show that under unawareness full unraveling might fail.

Keywords: Prudent rationalizability; caution; extensive-form rationalizability; extensive-form games; unawareness; verifiable communication (search for similar items in EconPapers)
JEL-codes: C70 C72 D80 D82 (search for similar items in EconPapers)
Pages: 30
Date: 2011-04-03
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Citations: View citations in EconPapers (6)

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Working Paper: Prudent rationalizability in generalized extensive-form games (2011)
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