Beliefs and rationalizability in games with complementarities

Laurent Mathevet

    Research output: Contribution to journalArticle

    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.

    Original languageEnglish (US)
    Pages (from-to)252-271
    Number of pages20
    JournalGames and Economic Behavior
    Volume85
    Issue number1
    DOIs
    StatePublished - May 2014

    Keywords

    • Beliefs
    • Complementarities
    • Equilibrium uniqueness
    • Global games
    • Optimism
    • Rationalizability
    • Type-sensitivity

    ASJC Scopus subject areas

    • Finance
    • Economics and Econometrics

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