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Nash Equilibrium without Mutual Knowledge of Rationality

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Kin Chung Lo

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Abstract

This paper defines an equilibrium concept for general preferences in two person normal form games. It collapses to Nash Equilibrium when preferences are represented by the expected utility model. An important characteristic of the equilibrium concept is that player i does not necessarily know that player j is rational, but she views rationality as infinitely more likely than irrationality. For suitable models of preferences, the equilibrium concept predicts that a player will take a "cautious" strategy that is not a best response in any Nash Equilibrium.

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Publisher Info
Paper provided by University of Toronto, Department of Economics in its series Working Papers with number ecpap-95-04.

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Length: 17 pages
Date of creation: 09 Jul 1995
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Handle: RePEc:tor:tecipa:ecpap-95-04

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

  1. Crawford, Vincent P., 1990. "Equilibrium without independence," Journal of Economic Theory, Elsevier, vol. 50(1), pages 127-154, February. [Downloadable!] (restricted)
  2. Blume, Lawrence & Brandenburger, Adam & Dekel, Eddie, 1991. "Lexicographic Probabilities and Equilibrium Refinements," Econometrica, Econometric Society, vol. 59(1), pages 81-98, January. [Downloadable!] (restricted)
  3. Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April. [Downloadable!] (restricted)
  4. Dekel, Eddie & Safra, Zvi & Segal, Uzi, 1991. "Existence and dynamic consistency of Nash equilibrium with non-expected utility preferences," Journal of Economic Theory, Elsevier, vol. 55(2), pages 229-246, December. [Downloadable!] (restricted)
  5. Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-87, May. [Downloadable!] (restricted)
  6. Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-80, September. [Downloadable!] (restricted)
  7. Blume, Lawrence & Brandenburger, Adam & Dekel, Eddie, 1991. "Lexicographic Probabilities and Choice under Uncertainty," Econometrica, Econometric Society, vol. 59(1), pages 61-79, January. [Downloadable!] (restricted)
  8. Mukerji, S., 1995. "A Theory of Play for Games in Strategic Form when Rationality is not Common Knowledge," Discussion Paper Series In Economics And Econometrics 9519, Economics Division, School of Social Sciences, University of Southampton.
  9. Dow James & Werlang Sergio Ribeiro Da Costa, 1994. "Nash Equilibrium under Knightian Uncertainty: Breaking Down Backward Induction," Journal of Economic Theory, Elsevier, vol. 64(2), pages 305-324, December. [Downloadable!] (restricted)
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Kin Chung Lo, 1995. "Extensive Form Games with Uncertainty Averse Players," Working Papers ecpap-95-03, University of Toronto, Department of Economics. [Downloadable!]
    Other versions:
  2. Kin Chung Lo, 1998. "Epistemic Conditions for Agreement and Stochastic Independence of epsilon-Contaminated Beliefs," Working Papers 1998_02, York University, Department of Economics. [Downloadable!]
  3. Werlang, Sérgio Ribeiro da Costa, 2000. "A Notion Of Subgame Perfect Nash Equilibrium Under Knightian Uncertainty," Economics Working Papers (Ensaios Economicos da EPGE) 376, Graduate School of Economics, Getulio Vargas Foundation (Brazil). [Downloadable!]
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