Substantive Rationality and Backward Induction

Joseph Halpern ()

Game Theory and Information from University Library of Munich, Germany

Abstract: Aumann has proved that common knowledge of substantive rationality implies the backwards induction solution in games of perfect information. Stalnaker has proved that it does not. Roughly speaking, a player is substantively rational if, for all vertices $v$, if the player were to reach vertex $v$, then the player would be rational at vertex $v$. It is shown here that the key difference between Aumann and Stalnaker lies in how they interpret this counterfactual. A formal model is presented that lets us capture this difference, in which both Aumann's result and Stalnaker's result are true (under appropriate assumptions).

Keywords: Substantive rationality; backward induction; games of perfect information; counterfactuals (search for similar items in EconPapers)
JEL-codes: C70 C80 (search for similar items in EconPapers)
Pages: 12 pages
Date: 2000-11-22
Note: Type of Document - PDF; prepared on Unix; pages: 12; figures: included. To appear, Games and Economic Behavior.
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Citations: View citations in EconPapers (3)

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Journal Article: Substantive Rationality and Backward Induction (2001)
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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpga:0004008

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