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On the strategic impact of an event under non-common priors

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  • Oyama, Daisuke
  • Tercieux, Olivier

Abstract

This paper studies the impact of a small probability event on strategic behavior in incomplete information games with non-common priors. It is shown that the global impact of a small probability event (i.e., its propensity to affect strategic behavior at all states in the state space) has an upper bound that is an increasing function of a measure of discrepancy from the common prior assumption. In particular, its global impact can be arbitrarily large under non-common priors, but is bounded from above under common priors. These results quantify the different implications common prior and non-common prior models have on the (infinite) hierarchies of beliefs.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 74 (2012)
Issue (Month): 1 ()
Pages: 321-331

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Handle: RePEc:eee:gamebe:v:74:y:2012:i:1:p:321-331

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Web page: http://www.elsevier.com/locate/inca/622836

Related research

Keywords: Common prior assumption; Higher order belief; Rationalizability; Contagion; Belief potential;

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  1. Monderer, Dov & Samet, Dov, 1989. "Approximating common knowledge with common beliefs," Games and Economic Behavior, Elsevier, Elsevier, vol. 1(2), pages 170-190, June.
  2. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, Econometric Society, vol. 61(5), pages 989-1018, September.
  3. Oyama, Daisuke & Tercieux, Olivier, 2010. "Robust equilibria under non-common priors," Journal of Economic Theory, Elsevier, Elsevier, vol. 145(2), pages 752-784, March.
  4. Atsushi Kajii & Stephen Morris, . "The Robustness of Equilibria to Incomplete Information," Penn CARESS Working Papers, Penn Economics Department ed504c985fc375cbe719b3f60, Penn Economics Department.
  5. Jonathan Weinstein & Muhamet Yildiz, 2007. "A Structure Theorem for Rationalizability with Application to Robust Predictions of Refinements," Econometrica, Econometric Society, Econometric Society, vol. 75(2), pages 365-400, 03.
  6. Oyama, Daisuke & Tercieux, Olivier, 2012. "On the strategic impact of an event under non-common priors," Games and Economic Behavior, Elsevier, Elsevier, vol. 74(1), pages 321-331.
  7. Rubinstein, Ariel, 1989. "The Electronic Mail Game: Strategic Behavior under "Almost Common Knowledge."," American Economic Review, American Economic Association, American Economic Association, vol. 79(3), pages 385-91, June.
  8. Barton L. Lipman, 2003. "Finite Order Implications of Common Priors," Econometrica, Econometric Society, Econometric Society, vol. 71(4), pages 1255-1267, 07.
  9. Lipman, Barton L., 2010. "Finite order implications of common priors in infinite models," Journal of Mathematical Economics, Elsevier, vol. 46(1), pages 56-70, January.
  10. Paul Milgrom & Nancy L.Stokey, 1979. "Information, Trade, and Common Knowledge," Discussion Papers, Northwestern University, Center for Mathematical Studies in Economics and Management Science 377R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  11. Monderer Dov & Samet Dov, 1995. "Stochastic Common Learning," Games and Economic Behavior, Elsevier, Elsevier, vol. 9(2), pages 161-171, May.
  12. Brandenburger Adam & Dekel Eddie, 1993. "Hierarchies of Beliefs and Common Knowledge," Journal of Economic Theory, Elsevier, Elsevier, vol. 59(1), pages 189-198, February.
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Cited by:
  1. Oyama, Daisuke & Tercieux, Olivier, 2005. "On the Strategic Impact of an Event under Non-Common Priors," MPRA Paper 4559, University Library of Munich, Germany.
  2. Oyama, Daisuke & Tercieux, Olivier, 2005. "Robust Equilibria under Non-Common Priors," MPRA Paper 14287, University Library of Munich, Germany.

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