Sensitivity of equilibrium behavior to higher-order beliefs in nice games
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Author(s)
Weinstein, Jonathan
Yildiz, Muhamet
Date Issued
July 2010
Journal
Games and Economic Behavior
Publisher
Elsevier
Citation
Weinstein, Jonathan, and Muhamet Yildiz. “Sensitivity of Equilibrium Behavior to Higher-Order Beliefs in Nice Games.” Games and Economic Behavior 72, no. 1 (May 2011): 288–300.
Version
Author's final manuscript
Abstract
We analyze “nice” games (where action spaces are compact intervals, utilities continuous and strictly concave in own action), which are used frequently in classical economic models. Without making any “richness” assumption, we characterize the sensitivity of any given Bayesian Nash equilibrium to higher-order beliefs. That is, for each type, we characterize the set of actions that can be played in equilibrium by some type whose lower-order beliefs are all as in the original type. We show that this set is given by a local version of interim correlated rationalizability. This allows us to characterize the robust predictions of a given model under arbitrary common knowledge restrictions. We apply our framework to a Cournot game with many players. There we show that we can never robustly rule out any production level below the monopoly production of each firm.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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Creative Commons Attribution-Noncommercial-NoDerivatives
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DOI of Published Version
https://doi.org/10.1016/j.geb.2010.07.003
