Rationalizable Conjectural Equilibrium: Between Nash and Rationalizability

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Rationalizable Conjectural Equilibrium: Between Nash and Rationalizability

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Ariel Rubinstein
Asher Wolinsky

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Ariel Rubinstein

Abstract

For a steady state to be a Nash equilibrium the agents have to perfectly observe the actions of others. This paper suggests a solution concept for cases where players observe only an imperfect signal of what the others' actions are. The model is enriched by specifying the signal that each player has about the actions taken by the others. The solution, which we call rationalizbale conjectural equilibrium (RCE), is a profile of actions such that each player's action is optimal, given the assumption that it is common knowledge that all players maximize their expected utility given their knowledge. The RCE occupies an intermediary position between Nash equilibrium on one hand and Rationalizability style Bernheim-Pearce on the other hand. The concept is demonstrated by several examples in which it refines the rationalizability concept and still is not equivalent to Nash equilibrium.

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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 933.

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Date of creation: May 1991
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Handle: RePEc:nwu:cmsems:933

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Article
- Rubinstein Ariel & Wolinsky Asher, 1994. "Rationalizable Conjectural Equilibrium: Between Nash and Rationalizability," Games and Economic Behavior, Elsevier, vol. 6(2), pages 299-311, March. [Downloadable!] (restricted)

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Battigalli, Pierpaolo, 2003. "Rationalizability in infinite, dynamic games with incomplete information," Research in Economics, Elsevier, vol. 57(1), pages 1-38, March. [Downloadable!] (restricted)
Bernheim, B Douglas, 1984. "Rationalizable Strategic Behavior," Econometrica, Econometric Society, vol. 52(4), pages 1007-28, July. [Downloadable!] (restricted)

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Eddie Dekel & Drew Fudenberg & David K Levine, 2002. "Learning to Play Bayesian Games," Levine's Working Paper Archive 625018000000000151, UCLA Department of Economics. [Downloadable!]
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- Eddie Dekel & Drew Fudenberg & David K. Levine, 2000. "Learning to Play Bayesian Games," Discussion Papers 1322, Northwestern University, Center for Mathematical Studies in Economics and Management Science, revised Jul 2001. [Downloadable!]
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- Gilli, Mario, 1999. "On Non-Nash Equilibria," Games and Economic Behavior, Elsevier, vol. 27(2), pages 184-203, May. [Downloadable!] (restricted)
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- JÃ³zsef SÃ¡kovics, 2001. "Games of Incomplete Information Without Common Knowledge Priors," Theory and Decision, Springer, vol. 50(4), pages 347-366, June. [Downloadable!] (restricted)
P. Battigalli & M. Siniscalchi, 2002. "Rationalization and Incomplete Information," Princeton Economic Theory Working Papers 9817a118e65062903de7c3577, UCLA Department of Economics. [Downloadable!]
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Roger Lagunoff, 1995. "On the dynamic selection of mechanisms for provisions of public projects," Discussion Paper / Institute for Empirical Macroeconomics 100, Federal Reserve Bank of Minneapolis. [Downloadable!]
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