Context-Dependent Forward Induction Reasoning
Pierpaolo Battigalli () and
No 351, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University
This paper studies the case where a game is played in a particular context. The context influences what beliefs players hold. As such, it may affect forward induction reasoning: If players rule out specific beliefs, they may not be able to rationalize observed behavior. The effects are not obvious. Context-laden forward induction may allow outcomes precluded by context-free forward induction. At the formal level, forward induction and contextual reasoning are defined within an epistemic structure. In particular, we represent contextual forward induction reasoning as rationality and common strong belief of rationality”(RCSBR) within an arbitrary type structure. (The concept is due to Battigalli-Siniscalchi [6, 2002].) We ask: What strategies are consistent with RCSBR (across all type structures)? We show that the RCSBR is characterized by a solution concept we call Extensive Form Best Response Sets (EFBRS’s). We go on to study the EFBRS concept in games of interest.
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