Common reasoning in games: a Lewisian analysis of common knowledge of rationality
The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximisation with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning, inspired by David Lewis’s account of common knowledge, in which the analogue of common knowledge is derivability in common reason. We show that such models can consistently incorporate any of a wide range of standards of decision-theoretic practical rationality. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.
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| Date of creation: | Jan 2011 |
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| Handle: | RePEc:not:notcdx:2011-01 |
| Contact details of provider: | Postal: School of Economics University of Nottingham University Park Nottingham NG7 2RD Phone: (44) 0115 951 5620 Fax: (0115) 951 4159 Web page: http://www.nottingham.ac.uk/economics/cedex/ More information through EDIRC
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