Rational Expectations in Games

A player i's actions in a game are determined by her beliefs about other players; these depend on the game's real-life context, not only its formal description. Define a game situation as a game together with such beliefs; call the beliefs—and i's resulting expectation—rational if the...

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Bibliographic Details
Published in:The American economic review 2008-03, Vol.98 (1), p.72-86
Main Authors: Aumann, Robert J., Dreze, Jacques H.
Format: Article
Language:English
Subjects:
Beliefs
Conditional probabilities
Correlation
Decision theory
Economic expectations
Economic theory
Equilibrium
Expectation
Game theory
Games
Nash equilibrium
Probability distributions
Protagonists
Rational expectations
Rational expectations theory
Rationality
Strategic planning
Studies
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Summary:A player i's actions in a game are determined by her beliefs about other players; these depend on the game's real-life context, not only its formal description. Define a game situation as a game together with such beliefs; call the beliefs—and i's resulting expectation—rational if there is common knowledge of rationality and a common prior. In two-person zero-sum games, i's only rational expectation is the game's value. In an arbitrary game G, we characterize i's rational expectations in terms of the correlated equilibria of the doubled game 2G in which each of i's strategies in G appears twice.
ISSN:0002-8282
1944-7981
DOI:10.1257/aer.98.1.72