Strategy subsets closed under rational behavior (Q1175961)

The authors introduce the notion of strategies that are closed under rational behavior. Informally, if players can agree to a subset of strategies and it is common knowledge that players choose optimal response to beliefs, then it is possible for an agreement to play strategies in a set closed under rational behavior to be common knowledge. A set of strategies is closed under rational behavior (curb) if it contains all of its best replies. A tight curb is equal to its best replies. The authors prove that curbs exist provided that the game has compact strategy sets and continuous payoff functions. They establish the following properties: Each curb set contains a Nash equilibrium. The set of rationalizable strategies is the maximal curb. An equilibrium is strict if and only if it is, taken as a singleton, a tight curb set. The authors argue that because of this property, tight curb sets should be viewed as a generalization of strict equilibria with general existence properties.