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Rationalizable conjectural equilibrium: A framework for robust predictions

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  • Esponda, Ignacio

    ()
    (Stern School of Business, New York University)

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    Abstract

    I introduce a new framework to study environments with both structural and strategic uncertainty, different from Harsanyi's (1967-8) `Bayesian games', that allows a researcher to test the robustness of Nash predictions while maintaining certain desirable restrictions on players' beliefs. The solution concept applied to this environment is rationalizable conjectural equilibrium (RCE), which integrates both learning from feedback (in the spirit of self-confirming equilibrium) and from introspection (in the spirit of rationalizability). I provide an epistemic definition of RCE and obtain a characterization in terms of a procedure that generalizes iterated deletion of strategies that are not a best response.

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    File URL: http://econtheory.org/ojs/index.php/te/article/viewFile/20130467/8783/273
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    Bibliographic Info

    Article provided by Econometric Society in its journal Theoretical Economics.

    Volume (Year): 8 (2013)
    Issue (Month): 2 (May)
    Pages:

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    Handle: RePEc:the:publsh:928

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    Web page: http://econtheory.org

    Related research

    Keywords: Rationalizability; self-confirming equilibrium; epistemic framework; robust equilibrium predictions;

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    References

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    1. Jeffrey C. Ely & Marcin Peski, 2005. "Hierarchies of Belief and Interim Rationalizability," Levine's Bibliography 122247000000000817, UCLA Department of Economics.
    2. Gilli, Mario, 1999. "On Non-Nash Equilibria," Games and Economic Behavior, Elsevier, vol. 27(2), pages 184-203, May.
    3. Ignacio Esponda, 2008. "Behavioral Equilibrium in Economies with Adverse Selection," American Economic Review, American Economic Association, vol. 98(4), pages 1269-91, September.
    4. Muhamet Yildiz & Jonathan Weinsten, 2004. "Impact of higher-order uncertainty," Econometric Society 2004 North American Winter Meetings 157, Econometric Society.
    5. Battigalli Pierpaolo & Di Tillio Alfredo & Grillo Edoardo & Penta Antonio, 2011. "Interactive Epistemology and Solution Concepts for Games with Asymmetric Information," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 11(1), pages 1-40, March.
    6. Neeman, Z., 1998. "The Relevance of Private Infromation in Mechanism Design," Papers 93, Boston University - Department of Economics.
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