Rational Rules of Thumb in Finite Dynamic Games N-person Backward Induction with Inconsistently Aligned Beliefs and Full Rationality

Varoufakis Varoufakis

doi:10.3844/ajassp.2005.57.60

Abstract

Recent work has cast considerable doubt on the plau sibility of specific assumptions about how rational agents form out-of-equilibrium beliefs in finite extensive games in which beliefs are induced backwards. The point is that the resulting consiste ntly aligned beliefs are incoherent in view of the counterfactuals they rely on. This study asks: How will the possibility of inconsistently aligned beli efs affect the manner in which rational players play such games? It shows that, provided beliefs are aligned monotonically, the more interesting qualitative fea tures of the conventional approach remain unchanged.

Highlights

Steps which are difficult to Imagine a table piled up with G gold sovereigns
The more coins there are on the table the more difficult it is for instrumentally rational players to discern the difference between ‘trembles’ and bluffs
Consider the stage with k coins left on the table at which player Ak is active and let: pk = Probability that player Ak will choose one coin

Summary

Introduction

Steps (such as assuming CAB) which are difficult to Imagine a table piled up with G gold sovereigns. The more coins there are on the table the more difficult it is for instrumentally rational players to discern the difference between ‘trembles’ and bluffs Consider the stage with k coins left on the table at which player Ak is active and let: pk = Probability that player Ak will choose one coin (i.e., play ACROSS)

Results

Conclusion