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Farsighted Rationality

Author

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  • Karos, Dominik

    (RS: GSBE ETBC, Microeconomics & Public Economics, RS: GSBE Theme Conflict & Cooperation)

  • Kasper, Laura

Abstract

Farsighted deviations are based on agents' abilities to compare the outcome of a farsighted deviation to the status quo. However, agents do not account for deviations by others in case they do not change the status quo; so, they are not fully farsighted. We use extended expectation functions to capture a coalition's belief about subsequent moves of other coalitions in both cases. We provide three stability and optimality axioms on coalition behavior and show that an expectation function satisfies these axioms if and only if it corresponds to an equilibrium of the abstract game that is stable with respect to coalitional deviations. We provide applications of our solution for games in characteristic function form and matching problems.

Suggested Citation

  • Karos, Dominik & Kasper, Laura, 2018. "Farsighted Rationality," Research Memorandum 011, Maastricht University, Graduate School of Business and Economics (GSBE).
    • Handle: RePEc:unm:umagsb:2018011
    DOI: 10.26481/umagsb.2018011
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    References listed on IDEAS

    as
    1. Bloch, Francis & van den Nouweland, Anne, 2020. "Farsighted stability with heterogeneous expectations," Games and Economic Behavior, Elsevier, vol. 121(C), pages 32-54.
    2. , & , J. & ,, 2011. "Von Neumann-Morgenstern farsightedly stable sets in two-sided matching," Theoretical Economics, Econometric Society, vol. 6(3), September.
    3. Dutta, Bhaskar & Vohra, Rajiv, 2017. "Rational expectations and farsighted stability," Theoretical Economics, Econometric Society, vol. 12(3), September.
    4. Herings, P. Jean-Jacques & Mauleon, Ana & Vannetelbosch, Vincent, 2009. "Farsightedly stable networks," Games and Economic Behavior, Elsevier, vol. 67(2), pages 526-541, November.
    5. Effrosyni Diamantoudi & Licun Xue, 2003. "Farsighted stability in hedonic games," Social Choice and Welfare, Springer;The Society for Social Choice and Welfare, vol. 21(1), pages 39-61, August.
    6. Jordan, J.S., 2006. "Pillage and property," Journal of Economic Theory, Elsevier, vol. 131(1), pages 26-44, November.
    7. Ray, Debraj, 2007. "A Game-Theoretic Perspective on Coalition Formation," OUP Catalogue, Oxford University Press, number 9780199207954.
    8. Debraj Ray & Rajiv Vohra, 2015. "The Farsighted Stable Set," Econometrica, Econometric Society, vol. 83(3), pages 977-1011, May.
    9. Licun Xue, 1998. "Coalitional stability under perfect foresight," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 603-627.
    10. John C. Harsanyi, 1974. "An Equilibrium-Point Interpretation of Stable Sets and a Proposed Alternative Definition," Management Science, INFORMS, vol. 20(11), pages 1472-1495, July.
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    Cited by:

    1. Mehmet S. Ismail, 2018. "The strategy of conflict and cooperation," Papers 1808.06750, arXiv.org, revised Sep 2023.
    2. Kimya, Mert, 2020. "Equilibrium coalitional behavior," Theoretical Economics, Econometric Society, vol. 15(2), May.
    3. Steven J. Brams & Mehmet S. Ismail, 2022. "Every normal-form game has a Pareto-optimal nonmyopic equilibrium," Theory and Decision, Springer, vol. 92(2), pages 349-362, March.

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    More about this item

    JEL classification:

    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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