IDEAS home Printed from
MyIDEAS: Log in (now much improved!) to save this paper

From Asymmetric Information to Social Knowledge: A Game Theoretic Example of Strategic vs. Bayesian Beliefs’ Updating

Listed author(s):
  • Alberto Battistini


Registered author(s):

    this paper provides a counterexample to a famous theorem of Aumann (1976) which states that common priors and common knowledge of the posteriors imply that the latter must be identical. This theorem, also known as an ‘agreement theorem’ after the title of the original paper, is based on the so-called ‘Harsanyi doctrine’, that is, on the idea that different probability assessments can only be the result of differential information. In its turn, the theorem is crucial to the epistemic conditions for Nash equilibrium, since common priors and common knowledge of the conjectures essentially mean that players already agree on how the game will be played. Consequently, the argument is simply that when knowledge is about a conflictual phenomenon, disagreement is not only possible but also rational, though not in a Bayesian sense. More specifically, since the point is made with a game-theoretic example of the evolution of the institutional structure of production, the rationality of such disagreements is relative to the proposed solution concept, which in addition to the absence of incentives to unilateral changes of strategies requires the absence of tendencies to change the rules of the game. In particular, then, the paper shows that, when the assumptions that allow the commitment to methodological individualism are dropped, assessing the conditional probability of events taking account of the likely outcomes, that is, updating beliefs strategically rather than by a fatalistic application of the Bayes’ law, is not wishful thinking but a quite logical consequence of a cognitive conflict which arises from an underlying real conflict and may lead to efficient and egalitarian institutional changes. The basic shift in the focus of the analysis, in other words, consists of passing from the problem of asymmetric information about an observer-independent phenomenon to the problem of a different interpretation of the same observer-dependent phenomenon, a shift that in the domain of cognition mirrors the shift from Pareto-efficient exchanges among given individuals to structurally inefficient conflicts between groups in the reality domain. The contribution of the paper, in this sense, is the attempt to model the process through which agreement, rather than being dogmatically assumed from the outset, turns out to be socially constructed by interested parties. .

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

    File URL:
    Download Restriction: no

    Paper provided by Department of Economics, University of Siena in its series Department of Economics University of Siena with number 630.

    in new window

    Date of creation: Dec 2011
    Handle: RePEc:usi:wpaper:630
    Contact details of provider: Postal:
    Piazza S.Francesco,7 - 53100 Siena

    Phone: (39)(0577)232620
    Fax: (39)(0577)232661
    Web page:

    More information through EDIRC

    References listed on IDEAS
    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.:

    in new window

    1. Masahiko Aoki, 2013. "Endogenizing institutions and institutional changes," Chapters,in: Comparative Institutional Analysis, chapter 16, pages 267-297 Edward Elgar Publishing.
    2. Aumann, Robert J, 1987. "Correlated Equilibrium as an Expression of Bayesian Rationality," Econometrica, Econometric Society, vol. 55(1), pages 1-18, January.
    3. Aumann, Robert J., 1974. "Subjectivity and correlation in randomized strategies," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 67-96, March.
    4. Coase, R H, 1992. "The Institutional Structure of Production," American Economic Review, American Economic Association, vol. 82(4), pages 713-719, September.
    5. Henrich, Joseph, 2004. "Cultural group selection, coevolutionary processes and large-scale cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 53(1), pages 3-35, January.
    6. Searle, John R., 2005. "What is an institution?," Journal of Institutional Economics, Cambridge University Press, vol. 1(01), pages 1-22, June.
    Full references (including those not matched with items on IDEAS)

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    When requesting a correction, please mention this item's handle: RePEc:usi:wpaper:630. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Fabrizio Becatti)

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.