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Approximate knowledge of rationality and correlated equilibria

Fabrizio Germano () and Peio Zuazo Garín
Authors registered in the RePEc Author Service: Peio Zuazo-Garin

IKERLANAK from Universidad del País Vasco - Departamento de Fundamentos del Análisis Económico I

Abstract: We extend Aumann's [3] theorem deriving correlated equilibria as a consequence of common priors and common knowledge of rationality by explicitly allowing for non-rational behavior. We replace the assumption of common knowledge of rationality with a substantially weaker notion, joint p-belief of rationality, where agents believe the other agents are rational with probabilities p = (pi)i2I or more. We show that behavior in this case constitutes a constrained correlated equilibrium of a doubled game satisfying certain p-belief constraints and characterize the topological structure of the resulting set of p-rational outcomes. We establish continuity in the parameters p and show that, for p su ciently close to one, the p-rational outcomes are close to the correlated equilibria and, with high probability, supported on strategies that survive the iterated elimination of strictly dominated strategies. Finally, we extend Aumann and Dreze's [4] theorem on rational expectations of interim types to the broader p-rational belief systems, and also discuss the case of non-common priors.

Keywords: correlated equilibrium; aproximate common knowledge; bounded rationality; p-rational blief system; common prior; information noncooperative game (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
Date: 2012-07-16
New Economics Papers: this item is included in nep-gth, nep-knm, nep-mic and nep-upt
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Related works:
Working Paper: Approximate Knowledge of Rationality and Correlated Equilibria (2012) Downloads
Working Paper: Approximate Knowledge of Rationality and Correlated Equilibria (2012) Downloads
Working Paper: Approximate knowledge of rationality and correlated equilibria (2012) Downloads
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Dpto. de Fundamentos del Análisis Económico I, Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain

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