Hierarchies of Beliefs and Common Knowledge

Abstract

Game-theoretic analysis often leads to consideration of an infinite hierarchy of beliefs for each player. Harsanyi suggested that such a hierarchy of beliefs could be summarized in a single entity, called the player′s type. This paper provides an elementary construction, complementary to the construction already given in [J-F. Mertens and S. Zamir, Formulation of Bayesian analysis for games with incomplete information, Int. J. Game Theory 14 (1985), 1–29] of Harsanyi′s notion of a type. It is shown that if a player′s type is coherent then it induces a belief over the types of the other players. Imposing common knowledge of coherency closes the model of beliefs. We go on to discuss the question that often arises as to the sense in which the structure of a game-theoretic model is, or can be assumed to be, common knowledge. Journal of Economic Literature Classification Number: 026.