Substantive Rationality and Backward Induction
Aumann has proved that common knowledge of substantive rationality implies the backwards induction solution in games of perfect information. Stalnaker has proved that it does not. Roughly speaking, a player is substantively rational if, for all vertices $v$, if the player were to reach vertex $v$, then the player would be rational at vertex $v$. It is shown here that the key difference between Aumann and Stalnaker lies in how they interpret this counterfactual. A formal model is presented that lets us capture this difference, in which both Aumann's result and Stalnaker's result are true (under appropriate assumptions).
|Date of creation:||22 Nov 2000|
|Date of revision:|
|Note:||Type of Document - PDF; prepared on Unix; pages: 12; figures: included. To appear, Games and Economic Behavior.|
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- Samet, Dov, 1996.
"Hypothetical Knowledge and Games with Perfect Information,"
Games and Economic Behavior,
Elsevier, vol. 17(2), pages 230-251, December.
- Dov Samet, 1994. "Hypothetical Knowledge and Games with Perfect Information," Game Theory and Information 9408001, EconWPA, revised 17 Aug 1994.
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- Philip J. Reny, 1992. "Rationality in Extensive-Form Games," Journal of Economic Perspectives, American Economic Association, vol. 6(4), pages 103-118, Fall.
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- Binmore, Ken, 1987. "Modeling Rational Players: Part I," Economics and Philosophy, Cambridge University Press, vol. 3(02), pages 179-214, October.
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