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Common assumption of rationality

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  • Keisler, H. Jerome
  • Lee, Byung Soo

Abstract

We build on the work of Brandenburger, Friedenberg, and Keisler (2008, BFK) by showing that rationality and common assumption of rationality (RCAR) is possible in complete lexicographic type structures and characterizes iterated admissibility—i.e., iterated elimination of weakly dominated strategies. Our result is unexpected in light of BFK’s result proving the impossibility of RCAR in continuous complete lexicographic type structures. We reconcile the two by showing that continuous complete lexicographic type structures differ from complete lexicographic type structures that admit RCAR only in how much caution—in a sense that we formalize—is required to assume events.

Suggested Citation

  • Keisler, H. Jerome & Lee, Byung Soo, 2023. "Common assumption of rationality," Journal of Mathematical Economics, Elsevier, vol. 109(C).
    • Handle: RePEc:eee:mateco:v:109:y:2023:i:c:s030440682300085x
    DOI: 10.1016/j.jmateco.2023.102892
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    More about this item

    Keywords

    Epistemic game theory; Admissibility; Iterated weak dominance; Assumption; Best-rationalization principle;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D80 - Microeconomics - - Information, Knowledge, and Uncertainty - - - General

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