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The implications of finite-order reasoning

Author

Listed:
  • Brandenburger, Adam

    (Stern School of Business, New York University)

  • Danieli, Alexander

    (School of Business, Arizona State University)

  • Friedenberg, Amanda

    (Department of Economics, University of Arizona)

Abstract

The epistemic conditions of rationality and mth-order strong belief of rationality (RmSBR; Battigalli and Siniscalchi (2002)) formalize the idea that players engage in contextualized forward-induction reasoning. This paper characterizes the behavior consistent with RmSBR across all type structures. In particular, in a class of generic games, R(m − 1)SBR is characterized by a new solution concept we call an m-best response sequence (m-BRS). Such sequences are an iterative version of extensive-form best response sets (Battigalli and Friedenberg (2012)). The strategies that survive m rounds of extensive-form rationalizability are consistent with an m-BRS, but there are m-BRS's that are disjoint from the former set. As such, there is behavior that is consistent with R(m − 1)SBR but inconsistent with m rounds of extensive-form rationalizability. We use our characterization to draw implications for the interpretation of experimental data. Specifically, we show that the implications are nontrivial in the three-repeated Prisoner's Dilemma and Centipede games.

Suggested Citation

  • Brandenburger, Adam & Danieli, Alexander & Friedenberg, Amanda, 2021. "The implications of finite-order reasoning," Theoretical Economics, Econometric Society, vol. 16(4), November.
    • Handle: RePEc:the:publsh:2889
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    More about this item

    Keywords

    Epistemic game theory; strategic uncertainty; bounded reasoning; identifying reasoning;
    All these keywords.

    JEL classification:

    • D01 - Microeconomics - - General - - - Microeconomic Behavior: Underlying Principles
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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