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

Oyama  Daisuke (1) , Olivier Tercieux (2, 3)

1 Faculty of economics
2 PSE - Paris-Jourdan Sciences Economiques
3 PSE - Paris School of Economics

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.

Mots clés: Common prior assumption; Higher order belief; Rationalizability; Contagion; Belief potential

Domaines: Economies et finances

Oyama  Daisuke, Olivier Tercieux. On the Strategic Impact of an Event under Non-Common Priors. Games and Economic Behavior, 2012, 74 (1), pp.321-331. ⟨10.1016/j.geb.2011.06.003⟩. ⟨halshs-00754605⟩