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Counterfactual Reasoning and Common Knowledge of Rationality in Normal Form Games

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  • Zambrano Eduardo

    ()
    (University of Notre Dame)

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    Abstract

    When evaluating the rationality of a player in a game one has to examine counterfactuals such as "what would happen if the player were to do what he does not do?" In this paper I develop a model of a normal form game where counterfactuals of this sort are evaluated as in the philosophical literature (cf. Lewis, 1973; Stalnaker, 1968). According to this method one evaluates a statement like ``what would the player believe if he were to do what he does not do'' at the world that is closest to the actual world where the hypothetical deviation occurs. I show that in this model common knowledge of rationality need not lead to rationalizability. I also present assumptions that allow rationalizability to follow from common knowledge of rationality. These assumptions suggest that rationalizability may not rely on weaker assumptions about belief consistency than Nash equilibrium.

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    Bibliographic Info

    Article provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.

    Volume (Year): 4 (2004)
    Issue (Month): 1 (November)
    Pages: 1-25

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    Handle: RePEc:bpj:bejtec:v:topics.4:y:2004:i:1:n:8

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    Web page: http://www.degruyter.com

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    Web: http://www.degruyter.com/view/j/bejte

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    Cited by:
    1. Kaushik Basu & Leonardo Becchetti & Luca Stanca, 2011. "Experiments with the Traveler’s Dilemma: welfare, strategic choice and implicit collusion," Social Choice and Welfare, Springer, vol. 37(4), pages 575-595, October.

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