Rational Rules of Thumb in Finite Dynamic Games N-person Backward Induction with Inconsistently Aligned Beliefs and Full Rationality
DOI : 10.3844/ajassp.2005.57.60
American Journal of Applied Sciences
Volume 2, Issue 13
Recent work has cast considerable doubt on the plausibility of specific assumptions about how rational agents form out-of-equilibrium beliefs in finite extensive games in which beliefs are induced backwards. The point is that the resulting consistently aligned beliefs are incoherent in view of the counterfactuals they rely on. This study asks: How will the possibility of inconsistently aligned beliefs affect the manner in which rational players play such games? It shows that, provided beliefs are aligned monotonically, the more interesting qualitative features of the conventional approach remain unchanged.
© 2005 Yanis Varoufakis. This is an open access article distributed under the terms of the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original author and source are credited.