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

Journal article: 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.

Author(s)

Oyama  Daisuke, Olivier Tercieux

Journal
  • Games and Economic Behavior
Date of publication
  • 2012
Keywords JEL
C72 D82
Keywords
  • Common prior assumption
  • Higher order belief
  • Rationalizability
  • Contagion
  • Belief potential
Pages
  • 321-331
Version
  • 1
Volume
  • 74