Abstract
The purpose of this paper is to present a new solution concept of stable equilibrium in beliefs ( SEB) by assuming it is common knowledge that players are uncertainty averse in the sense of Gilboa and Schmeidler (1989. Journal of Mathematical Economics 18, 141–153). By making use of an appealing criterion of ‘stability’, an SEB is defined as a strategy profile supported by a stable belief system. It is shown that all SEBs constitute a unique stable belief system, and an SEB satisfies subgame perfectness. Moreover, it is shown that the notion of SEB ‘refines’ that of subgame perfect equilibrium in terms of path of play. Finally, following Aumann (1995. Games and Economic Behavior 8, 6–19), this paper establishes some epistemic foundation for the notion of SEB.
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