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Common reasoning in games: a resolution of the paradoxes of ‘common knowledge of rationality’

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Author Info
Robin Cubitt () (School of Economics, University of Nottingham)
Robert Sugden () (School of Economics, University of East Anglia)

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Abstract

The game-theoretic assumption of ‘common knowledge of rationality’ leads to paradoxes when rationality is represented in a Bayesian framework as cautious expected utility maximization with independent beliefs (ICEU). We diagnose and resolve these paradoxes by presenting a new class of formal models of players’ reasoning in which the analogue of common knowledge is provability in common reason. We show that a range of standards of decision-theoretic practical rationality can be assumed without inconsistency to be provable in common reason in models of this class. We investigate the implications arising when the standard of decision-theoretic rationality so assumed is ICEU.

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Paper provided by The Centre for Decision Research and Experimental Economics, School of Economics, University of Nottingham in its series Discussion Papers with number 2005-17.

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Date of creation: Sep 2005
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Handle: RePEc:cdx:dpaper:2005-17

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C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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