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Quotient Spaces of Boundedly Rational Types

Davide Cianciaruso and Fabrizio Germano ()

No 1539, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: By identifying types whose low-order beliefs, up to level l(sub i), about the state of nature coincide, we obtain quotient type spaces that are typically smaller than the original ones, preserve basic topological properties, and allow standard equilibrium analysis even under bounded reasoning. Our Bayesian Nash (l(sub i, l sub _i)-equilibria capture players’ inability to distinguish types belonging to the same equivalence class. The case with uncertainty about the vector of levels (l(sub i, l sub _i) is also analyzed. Two examples illustrate the constructions. JEL Classification Numbers: C72, D03, D83

Keywords: Incomplete-information games; high-order reasoning; type space; quotient space; hierarchies of beliefs; bounded rationality Principle; menus; signals; direct revelation mechanisms. (search for similar items in EconPapers)
Date: 2011-09-20
New Economics Papers: this item is included in nep-cta, nep-gth and nep-mic
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Working Paper: Quotient Spaces of Boundedly Rational Types (2011) Downloads
Working Paper: Quotient spaces of boundedly rational types (2011) Downloads
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