Beliefs, Plans, and Perceived Intentions in Dynamic Games
Pierpaolo Battigalli () and
Nicodemo De Vito
No 629, Working Papers from IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University
We adopt the epistemic framework of Battigalli and Siniscalchi (J. Econ. Theory 88:188-230, 1999) to model the distinction between a player's contingent behavior, which is part of the external state, and his plan, which is described by his beliefs about his own behavior. This allows us to distinguish between intentional and unintentional behavior, and to explicitly model how players' revise their beliefs about the intentions of others upon observing their actions. We illustrate our approach with detailed examples and with a new derivation of backward induction from epistemic conditions. Specifically, we prove that optimal planning, belief in continuation consistency and common full belief in both imply the backward induction strategies and beliefs. We also present within our framework other relevant epistemic assumptions about backward and forward-induction reasoning, and relate them to similar ones studied in the previous literature.
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