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A Note on Intrinsic Correlation

Du, Songzi (2008): A Note on Intrinsic Correlation.

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Abstract

In this note we characterize the strategic implication of intrinsic correlation, introduced by Brandenburger and Friedenberg (2008), in the subjective correlated equilibrium setting of a complete information game. Intrinsic correlation restricts correlation devices to variables within the game, i.e. players's beliefs (and higher order beliefs) about each other's strategies, in contrast to signals or sunspots from the "outside." The characterization is a strengthening of best-response set with an injectivity condition for a certain subset identified by an iterative procedure. We also give an iterative procedure, analogous to the iterated removals of dominated strategies, that arrives at strategies consistent with our characterization, which always exist.

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