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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, vol. 1(2), pages 170-190, June.
  2. Barton L. Lipman, 2005. "Finite Order Implications of Common Priors in Infinite Models," Boston University - Department of Economics - Working Papers Series WP2005-009, Boston University - Department of Economics.
  3. Monderer Dov & Samet Dov, 1995. "Stochastic Common Learning," Games and Economic Behavior, Elsevier, vol. 9(2), pages 161-171, May.
  4. Atsushi Kajii & Stephen Morris, . "The Robustness of Equilibria to Incomplete Information," Penn CARESS Working Papers ed504c985fc375cbe719b3f60, Penn Economics Department.
  5. Rubinstein, Ariel, 1989. "The Electronic Mail Game: Strategic Behavior under "Almost Common Knowledge."," American Economic Review, American Economic Association, vol. 79(3), pages 385-91, June.
  6. Milgrom, Paul & Stokey, Nancy, 1982. "Information, trade and common knowledge," Journal of Economic Theory, Elsevier, vol. 26(1), pages 17-27, February.
  7. Barton L. Lipman, 1997. "Finite Order Implications of Common Priors," Game Theory and Information 9703005, EconWPA.
  8. Hans Carlsson & Eric van Damme, 1993. "Global Games and Equilibrium Selection," Levine's Working Paper Archive 122247000000001088, David K. Levine.
  9. Jonathan Weinstein & Muhamet Yildiz, 2007. "A Structure Theorem for Rationalizability with Application to Robust Predictions of Refinements," Econometrica, Econometric Society, vol. 75(2), pages 365-400, 03.
  10. Brandenburger Adam & Dekel Eddie, 1993. "Hierarchies of Beliefs and Common Knowledge," Journal of Economic Theory, Elsevier, vol. 59(1), pages 189-198, February.
  11. Oyama, Daisuke & Tercieux, Olivier, 2010. "Robust equilibria under non-common priors," Journal of Economic Theory, Elsevier, vol. 145(2), pages 752-784, March.
  12. Oyama, Daisuke & Tercieux, Olivier, 2012. "On the strategic impact of an event under non-common priors," Games and Economic Behavior, Elsevier, vol. 74(1), pages 321-331.
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Cited by:
  1. Oyama, Daisuke & Tercieux, Olivier, 2005. "Robust Equilibria under Non-Common Priors," MPRA Paper 14287, University Library of Munich, Germany.
  2. Oyama, Daisuke & Tercieux, Olivier, 2012. "On the strategic impact of an event under non-common priors," Games and Economic Behavior, Elsevier, vol. 74(1), pages 321-331.

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