Mutually Acceptable Courses of Action

Abstract:     
We offer a formal game-theoretic framework that enables the analysis of situations whereby rational individuals with different beliefs and views of the world agree to a shared course of action. We define the notion of a course of action which, unlike a strategy profile, does not require a complete specification of actions in every contingency. We introduce a new solution concept: a mutually acceptable course of action (MACA), which can be viewed as an (incomplete) contract or a social norm that free rational individuals would be willing to follow for their own diverse reasons. We show that by varying the degree of completeness of the underlying course of action, the concept of an MACA can be related to many of the commonly used solution concepts, such as perfect equilibrium, perfect Bayesian equilibrium, (rationalizable) self-confirming equilibrium, and rationalizable outcomes.

Keywords: Extensive games, perfection, course of action, self-confirming equilibrium, rationalizability, strategic contracts

JEL Classification: C70, C72

working papers series