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Common reasoning in games: a resolution of the paradoxes of ‘common knowledge of rationality’

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  • Robin Cubitt

    () (School of Economics, University of Nottingham)

  • Robert Sugden

    () (School of Economics, University of East Anglia)

Abstract

The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximization with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning in which the analogue of common knowledge is provability in common reason. We show that a range of standards of decision-theoretic practical rationality can be assumed without inconsistency to be provable in common reason in models of this class. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.

Suggested Citation

  • Robin Cubitt & Robert Sugden, 2005. "Common reasoning in games: a resolution of the paradoxes of ‘common knowledge of rationality’," Discussion Papers 2005-17, The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham.
  • Handle: RePEc:cdx:dpaper:2005-17
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    References listed on IDEAS

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    JEL classification:

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

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