Counterfactual Reasoning and Common Knowledge of Rationality in Normal Form Games
AbstractWhen 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 InfoArticle provided by De Gruyter in its journal The B.E. Journal of Theoretical Economics.
Volume (Year): 4 (2004)
Issue (Month): 1 (November)
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Web page: http://www.degruyter.com
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- 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.
- Basu, Kaushik & Becchetti, Leonardo & Stanca, Luca, 2008. "Experiments with the Traveler's Dilemma: Welfare, Strategic Choice and Implicit Collusion," Working Papers 08-07, Cornell University, Center for Analytic Economics.
- Kaushik Basuy & Leonardo Becchetti & Luca Stanca, 2008. "Experiments with the Traveler's Dilemma: Welfare, Strategic Choice and Implicit Collusion," Working Papers 147, University of Milano-Bicocca, Department of Economics, revised Oct 2008.
- Kaushik Basu & Leonardo Becchetti & Luca Stanca, 2011. "Experiments with the Traveler's Dilemma: Welfare, Strategic Choice and Implicit Collusion," CEIS Research Paper 188, Tor Vergata University, CEIS, revised 23 Mar 2011.
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