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Forward induction reasoning and correct beliefs

Listed author(s):
  • Perea, Andrés
Registered author(s):

    All equilibrium concepts implicitly make a correct beliefs assumption, stating that a player believes that his opponents are correct about his first-order beliefs. In this paper we show that in many dynamic games of interest, this correct beliefs assumption may be incompatible with a very basic form of forward induction reasoning: the first two layers of extensive-form rationalizability (Pearce, 1984; Battigalli, 1997, epistemically characterized by Battigalli and Siniscalchi, 2002). Hence, forward induction reasoning naturally leads us away from equilibrium reasoning. In the second part we classify the games for which equilibrium reasoning is consistent with this type of forward induction reasoning, and find that this class is very small.

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    File URL: http://www.sciencedirect.com/science/article/pii/S0022053117300303
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    Article provided by Elsevier in its journal Journal of Economic Theory.

    Volume (Year): 169 (2017)
    Issue (Month): C ()
    Pages: 489-516

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    Handle: RePEc:eee:jetheo:v:169:y:2017:i:c:p:489-516
    DOI: 10.1016/j.jet.2017.02.013
    Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622869

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