Beliefs and rationalizability in games with complementarities |
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Affiliation: | 1. Department of Economics, The Ohio State University, 1945 North High Street, Columbus, OH 43210, USA;2. Department of Economics, Hong Kong University of Science and Technology, Clear Water Bay, Kowloon, Hong Kong;3. Department of Economics, Stanford University, 579 Serra Mall, Stanford, CA 94305, USA;1. Kyiv School of Economics, 92-94 Dmytrivska, Kyiv 01135, Ukraine;2. Department of Economics, Tippie College of Business, University of Iowa, Iowa City, IA 52242-1994, United States |
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Abstract: | We propose two characteristics of beliefs and study their role in shaping the set of rationalizable strategy profiles in games with incomplete information. The first characteristic, type-sensitivity, is related to how informative a player thinks his type is. The second characteristic, optimism, is related to how “favorable” a player expects the outcome of the game to be. The paper has two main results: the first result provides an upper bound on the size of the set of rationalizable strategy profiles; the second gives a lower bound on the change of location of this set. These bounds are explicit expressions that involve type-sensitivity, optimism, and payoff characteristics. Our results generalize and clarify the well-known uniqueness result of global games (Carlsson and van Damme, 1993). They also imply new uniqueness results and allow us to study rationalizability in new environments. We provide applications to supermodular mechanism design (Mathevet, 2010b) and information processing errors. |
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Keywords: | Complementarities Rationalizability Beliefs Type-sensitivity Optimism Global games Equilibrium uniqueness |
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