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Rationalizability and Minimal Complexity in Dynamic Games

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  • Perea Andrés

    (METEOR)

Abstract

This paper presents a formal epistemic framework for dynamic games in which players, during the course of the game, may revise their beliefs about the opponents'' utility functions. We impose three key conditions upon the players'' beliefs: (a) throughout the game, every move by the opponent should be interpreted as being part of a rational strategy, (b) the belief about the opponents'' relative ranking of two strategies should not be revised unless one is certain that the opponent has decided not to choose one of these strategies, and (c) the players'' initial beliefs about the opponents'' utility functions should agree on a given profile u of utility functions. Types that, throughout the game, respect common belief about these three events, are called persistently rationalizable for the profile u of utility functions. It is shown that persistent rationalizability implies the backward induction procedure in generic games with perfect information. We next focus on persistently rationalizable types for u that hold a theory about the opponents of ``minimal complexity'''', resulting in the concept of minimal rationalizability. For two-player simultaneous move games, minimal rationalizability is equivalent to the concept of Nash equilibrium strategy. In every outside option game, as defined by van Damme (1989), minimal rationalizability uniquely selects the forward induction outcome.

Suggested Citation

  • Perea Andrés, 2003. "Rationalizability and Minimal Complexity in Dynamic Games," Research Memorandum 047, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
  • Handle: RePEc:unm:umamet:2003047
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    References listed on IDEAS

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    Cited by:

    1. Oikonomou, V.K. & Jost, J, 2013. "Periodic strategies and rationalizability in perfect information 2-Player strategic form games," MPRA Paper 48117, University Library of Munich, Germany.
    2. Perea Andrés, 2003. "Proper Rationalizability and Belief Revision in Dynamic Games," Research Memorandum 048, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    3. Asheim, Geir B. & Perea, Andres, 2005. "Sequential and quasi-perfect rationalizability in extensive games," Games and Economic Behavior, Elsevier, vol. 53(1), pages 15-42, October.
    4. Perea Andrés, 2004. "Minimal Belief Revision leads to Backward Induction," Research Memorandum 032, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).

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