Common belief in rationality in games with unawareness (Q2082778)

This paper presents a new epistemic model and its associated solution concept for static games where players may be unaware of some of the choices that can be made. It starts by defining static games with unawareness by including in the definition the classes of \textit{views} that the players may have on the game. Then it develops an \textit{epistemic model}, in which each type of a player has an associated view. The model encodes players' belief hierarchies on choices and views. This allows to formulate a concept of \textit{common belief in rationality}. Accordingly a type \(t_i\) of a player \(i\) believes in the opponents' rationality, believes that the opponents believe in the other players' rationality, and so on. An alternative \(c_i\) can be rationally chosen by player \(i\) under common belief in rationality with a view \(v_i\) if there is an epistemic model and a type \(t_i^*\) corresponding to \(v_i\), expressing the common belief in rationality such that \(c_i\) is optimal for \(t_i^*\). An \textit{iterated strict dominance} procedure can be applied, according to which each player \(i\) chooses recursively views that are included in her original view. Then, the author proves the following characterization theorem: Given a static game with unawareness \(G\), for every player \(i\) and every view \(v_i\) and every choice \(c_i\) supported by \(v_i\), \(c_i\) is the rational choice under common belief in rationality iff \(c_i\) and \(v_i\) survives the procedure of iterated strict dominance for unawareness. The paper develops this analysis for two scenarios, one that limits the possible views that may enter the players' belief hierarchies. In the other what is limited are the belief hierarchies on views.