On the Strategic Impact of an Event under Non-Common Priors

Oyama, Daisuke and Tercieux, Olivier (2005): On the Strategic Impact of an Event under Non-Common Priors. Unpublished.

Abstract

This paper studies the impact of a small probability event on strategic behavior in incomplete information games with non-common priors. It is shown that the global impact of a small probability event (i.e., its propensity to affect strategic behavior at all states in the state space) has an upper bound that is an increasing function of a measure of discrepancy from the common prior assumption. In particular, its global impact can be arbitrarily large under non-common priors, but is bounded from above under common priors. These results quantify the different implications common prior and non-common prior models have on the (infinite) hierarchies of beliefs.

• Item Type: MPRA Paper
• Language: English
• Keywords: common prior assumption; higher order belief; rationalizability; contagion; belief potential
• Subjects: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information; C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games

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