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Cataloged Resource Summary

 

Title

Game Theory Course: 2.2 Iterated Dominance and Rationalizability

Author

Jim Ratliff

Category

Game Theory

Subject

Nonequilibrium Solution Concepts

Type

Article

Description

By assuming that the players' rationality is common knowledge, we can justify an iterative process of outcome rejection--the iterated elimination of strictly dominated strategies--which can often sharpen our predictions. Outcomes which do not survive this process of elimination cannot plausibly be played when the rationality of the players is common knowledge. A similar, and weakly stronger, process--the iterated elimination of strategies which are never best responses--leads to the solution concept of rationalizability. The surviving outcomes of this process constitute the set of rationalizable outcomes. Each such outcome is a plausible result (and these are the only plausible results)when the players' rationality is common knowledge. In two-player games the set of rationalizable outcomes is exactly the set of outcomes which survive the iterated elimination of strictly dominated strategies. In three-or-more-player games, the set of rationalizable outcomes can be strictly smaller than the set of outcomes which survives the iterated elimination of strictly dominated strategies.

URL

http://www.virtualperfection.com/gametheory/Section2.2.html

Home URL

http://www.virtualperfection.com/gametheory/index.html
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