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Conservative vs optimistic rationality in games: A revisitation

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  • Fotso, Alphonse Fodouop
  • Pongou, Roland
  • Tchantcho, Bertrand

Abstract

This paper revisits the problem of formalizing a conservative rationality concept in games. A rationality concept is said to be conservative if whenever it advises an agent to move from the status quo, that agent cannot be worse off at any of the possible equilibria that may be reached subsequent to this move, relative to the status quo. We formalize this notion for a wide class of games under complete information. Examining some leading concepts of rationality for such games, we find that the only concepts which are conservative are the stable set and the largest consistent set. An implication of our finding is that, along with the Nash equilibrium and the core, Harsanyi’s farsighted stable set and most of its descendants in actual fact lack farsightedness. Most of these rationality concepts are premised on a notion of optimism that we find to be “irrational” in that first movers in sequential games do not take into account the fact that subsequent moves are initiated by players who, even if they are optimistic, are utility maximizers.

Suggested Citation

  • Fotso, Alphonse Fodouop & Pongou, Roland & Tchantcho, Bertrand, 2017. "Conservative vs optimistic rationality in games: A revisitation," Economics Letters, Elsevier, vol. 156(C), pages 42-47.
  • Handle: RePEc:eee:ecolet:v:156:y:2017:i:c:p:42-47
    DOI: 10.1016/j.econlet.2017.02.028
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    References listed on IDEAS

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    1. Herings, P. Jean-Jacques & Mauleon, Ana & Vannetelbosch, Vincent J., 2004. "Rationalizability for social environments," Games and Economic Behavior, Elsevier, vol. 49(1), pages 135-156, October.
    2. Dutta, Bhaskar & Vohra, Rajiv, 2017. "Rational expectations and farsighted stability," Theoretical Economics, Econometric Society, vol. 12(3), September.
    3. Licun Xue, 1998. "Coalitional stability under perfect foresight," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 11(3), pages 603-627.
    4. Andjiga, N G & Moulen, J, 1989. "Necessary and Sufficient Conditions for l-Stability of Games in Constitutional Form," International Journal of Game Theory, Springer;Game Theory Society, vol. 18(1), pages 91-110.
    5. John C. Harsanyi, 1974. "An Equilibrium-Point Interpretation of Stable Sets and a Proposed Alternative Definition," Management Science, INFORMS, vol. 20(11), pages 1472-1495, July.
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    Cited by:

    1. Mahajan, Aseem & Pongou, Roland & Tondji, Jean-Baptiste, 2023. "Supermajority politics: Equilibrium range, policy diversity, utilitarian welfare, and political compromise," European Journal of Operational Research, Elsevier, vol. 307(2), pages 963-974.
    2. Pongou, Roland & Tondji, Jean-Baptiste, 2024. "The reciprocity set," Journal of Mathematical Economics, Elsevier, vol. 112(C).

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    More about this item

    Keywords

    Sequential games; Conservative criterion; Myopic/farsighted rationality; Regret; Irrational optimism;
    All these keywords.

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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