Theoretical Economics, Volume 1, Number 1 (March 2006)

Theoretical Economics 1 (2006), 19–65


Hierarchies of belief and interim rationalizability

Jeffrey C. Ely, Marcin Peski

Abstract


In games with incomplete information, conventional hierarchies of belief are incomplete as descriptions of the players' information for the purposes of determining a player's behavior. We show by example that this is true for a variety of solution concepts. We then investigate what is essential about a player's information to identify behavior. We specialize to two player games and the solution concept of interim rationalizability. We construct the universal type space for rationalizability and characterize the types in terms of their beliefs. Infinite hierarchies of beliefs over conditional beliefs, which we call Delta-hierarchies, are what turn out to matter. We show that any two types in any two type spaces have the same rationalizable sets in all games if and only if they have the same Delta-hierarchies.

Keywords: Interim rationalizability, belief hierarchies

JEL classification: C72, D82

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