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Context-Dependent Forward Induction Reasoning

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  • Pierpaolo Battigalli
  • Amanda Friedenberg

Abstract

This paper studies the case where a game is played in a particular context. The context influences what beliefs players hold. As such, it may affect forward induction reasoning: If players rule out specific beliefs, they may not be able to rationalize observed behavior. The effects are not obvious. Context-laden forward induction may allow outcomes precluded by context-free forward induction. At the formal level, forward induction and contextual reasoning are defined within an epistemic structure. In particular, we represent contextual forward induction reasoning as rationality and common strong belief of rationality”(RCSBR) within an arbitrary type structure. (The concept is due to Battigalli-Siniscalchi [6, 2002].) We ask: What strategies are consistent with RCSBR (across all type structures)? We show that the RCSBR is characterized by a solution concept we call Extensive Form Best Response Sets (EFBRS’s). We go on to study the EFBRS concept in games of interest.

Suggested Citation

  • Pierpaolo Battigalli & Amanda Friedenberg, 2009. "Context-Dependent Forward Induction Reasoning," Working Papers 351, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  • Handle: RePEc:igi:igierp:351
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    File URL: ftp://ftp.igier.unibocconi.it/wp/2009/351.pdf
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    Cited by:

    1. Battigalli Pierpaolo & Prestipino Andrea, 2013. "Transparent Restrictions on Beliefs and Forward-Induction Reasoning in Games with Asymmetric Information," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 13(1), pages 1-53, May.
    2. Amanda Friedenberg & Martin Meier, 2011. "On the relationship between hierarchy and type morphisms," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 46(3), pages 377-399, April.

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