Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/97236
Authors: 
Kets, Willemien
Year of Publication: 
2013
Series/Report no.: 
Discussion Paper, Center for Mathematical Studies in Economics and Management Science 1569
Abstract: 
The standard framework for analyzing games with incomplete information models players as if they have an infinite depth of reasoning, which is not always consistent with experimental evidence. This paper generalizes the type spaces of Harsanyi (1967-1968) so that players can have a finite depth of reasoning. We do this restricting the set of events that a player of a finite depth can reason about. This approach allows us to extend the Bayesian-Nash equilibrium concept to environments with players with a finite depth of reasoning. We demonstrate that the standard approach of modeling beliefs with Harsanyi type spaces fails to capture the equilibrium behavior of players with a finite depth, at least in some games. Consequently, the standard approach cannot be used to describe the equilibrium behavior of players with a finite depth in general.
Subjects: 
Bounded rationality
higher-order beliefs
finite depth of reasoning
games with incomplete information
Bayesian equilibrium
JEL: 
C70
C72
D80
D83
Document Type: 
Working Paper

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