Nash equilibrium without mutual knowledge of rationality
In a Nash equilibrium, players' rationality is mutual knowledge. However, both intuition and experimental evidence suggest that players do not know for sure the rationality of opponents. This paper proposes a new equilibrium concept, cautious equilibrium, that generalizes Nash equilibrium in terms of preferences in two person strategic games. In a cautious equilibrium, players do not necessarily know the rationality of opponents, but they view rationality as infinitely more likely than irrationality. For suitable models of preference, cautious equilibrium predicts that a player might take a "cautious" strategy that is not a best response in any Nash equilibrium.
Volume (Year): 14 (1999)
Issue (Month): 3 ()
|Note:||Received: January 28, 1998; revised version October 2, 1998|
|Contact details of provider:|| Web page: http://www.springer.com|
|Order Information:||Web: http://www.springer.com/economics/economic+theory/journal/199/PS2|
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.:
- Crawford, Vincent P., 1990. "Equilibrium without independence," Journal of Economic Theory, Elsevier, vol. 50(1), pages 127-154, February.
- 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.
- Dow, James & Werlang, Sérgio Ribeiro da Costa, 1992. "Nash equilibrium under knightian uncertainty: breaking-down backward induction," FGV/EPGE Economics Working Papers (Ensaios Economicos da EPGE) 186, FGV/EPGE - Escola Brasileira de Economia e Finanças, Getulio Vargas Foundation (Brazil).
- Blume, Lawrence & Brandenburger, Adam & Dekel, Eddie, 1991. "Lexicographic Probabilities and Equilibrium Refinements," Econometrica, Econometric Society, vol. 59(1), pages 81-98, January.
- Robert Aumann & Adam Brandenburger, 2014. "Epistemic Conditions for Nash Equilibrium," World Scientific Book Chapters,in: The Language of Game Theory Putting Epistemics into the Mathematics of Games, chapter 5, pages 113-136 World Scientific Publishing Co. Pte. Ltd..
- Aumann, Robert & Brandenburger, Adam, 1995. "Epistemic Conditions for Nash Equilibrium," Econometrica, Econometric Society, vol. 63(5), pages 1161-1180, September.
- Gilboa, Itzhak & Schmeidler, David, 1989. "Maxmin expected utility with non-unique prior," Journal of Mathematical Economics, Elsevier, vol. 18(2), pages 141-153, April.
- Itzhak Gilboa & David Schmeidler, 1989. "Maxmin Expected Utility with Non-Unique Prior," Post-Print hal-00753237, HAL.
- Lawrence Blume & Adam Brandenburger & Eddie Dekel, 2014. "Lexicographic Probabilities and Choice Under Uncertainty," World Scientific Book Chapters,in: The Language of Game Theory Putting Epistemics into the Mathematics of Games, chapter 6, pages 137-160 World Scientific Publishing Co. Pte. Ltd..
- Blume, Lawrence & Brandenburger, Adam & Dekel, Eddie, 1991. "Lexicographic Probabilities and Choice under Uncertainty," Econometrica, Econometric Society, vol. 59(1), pages 61-79, January.
- Schmeidler, David, 1989. "Subjective Probability and Expected Utility without Additivity," Econometrica, Econometric Society, vol. 57(3), pages 571-587, May.
- David Schmeidler, 1989. "Subjective Probability and Expected Utility without Additivity," Levine's Working Paper Archive 7662, David K. Levine.
- 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.
- 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. Full references (including those not matched with items on IDEAS)