Uncertain Rationality, Depth of Reasoning and Robustness in Games with Incomplete Information
Fabrizio Germano (),
Jonathan Weinstein and
Peio Zuazo-Garin ()
Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Predictions under common knowledge of payoffs may differ from those under arbitrarily, but finitely, many orders of mutual knowledge; Rubinstein's (1989) Email game is a seminal example. Weinstein and Yildiz (2007) showed that the discontinuity in the example generalizes: for all types with multiple rationalizable (ICR) actions, there exist similar types with unique rationalizable action. This paper studies how a wide class of departures from common belief in rationality impact Weinstein and Yildiz's discontinuity. We weaken ICR to ICR-x, where x is a sequence whose n-th term is the probability players attach to (n - 1)th-order belief in rationality. We find that Weinstein and Yildiz's discontinuity holds when higher-order belief in rationality remains above some threshold (constant x), but fails when higher-order belief in rationality eventually becomes low enough (x converging to 0).
Keywords: Robustness; rationalizability; bounded rationality; incomplete information; belief hierarchies. (search for similar items in EconPapers)
JEL-codes: C72 D82 D83 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-mic
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Journal Article: Uncertain rationality, depth of reasoning and robustness in games with incomplete information (Forthcoming)
Working Paper: Uncertain Rationality, Depth of Reasoning and Robustness in Games with Incomplete Information (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:1548
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