Rationalization and Incomplete Information

Pierpaolo Battigalli, Marciano Siniscalchi
2003 Advances in Theoretical Economics  
We analyze a family of solution procedures for games with incomplete information that do not require the specification of an epistemic type spaceà la Harsanyi, but can accommodate a (commonly known) collection of explicit restrictions ∆ on first-order beliefs. For any fixed ∆ we obtain a solution called strong ∆-rationalizability. In static games, strong ∆-rationalizability characterizes the set of outcomes (combinations of payoff types and strategies) that may occur in any Bayesian equilibrium
more » ... ayesian equilibrium model consistent with ∆; these are precisely the outcomes consistent with common certainty of rationality and of the restrictions ∆. Hence, our approach to the analysis of incomplete-information games is consistent with Harsanyi's, and it may be viewed as capturing the robust implications of Bayesian equilibrium analysis. In dynamic games, strong ∆-rationalizability yields a forward-induction refinement of this set of Bayesian equilibrium outcomes. Focusing on the restriction that first-order beliefs be consistent with a given distribution ζ on terminal nodes, we obtain a refinement of self-confirming equilibrium. In signalling games, this refinement coincides with the Iterated Intuitive Criterion.
doi:10.2202/1534-5963.1073 fatcat:vzfjvbqiljh63b7l4al432jvwu