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

28 Pages Posted: 3 Jul 2007

See all articles by Daisuke Oyama

Daisuke Oyama

University of Tokyo - Faculty of Economics

Olivier Tercieux

Paris-Jourdan Sciences Economiques (PSE)

Date Written: July 3, 2007

Abstract

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.

Keywords: common prior assumption, higher order belief, rationalizability, contagion, belief potential

JEL Classification: C72, D82

Suggested Citation

Oyama, Daisuke and Tercieux, Olivier, On the Strategic Impact of an Event under Non-Common Priors (July 3, 2007). Available at SSRN: https://ssrn.com/abstract=998022 or http://dx.doi.org/10.2139/ssrn.998022

Daisuke Oyama (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Olivier Tercieux

Paris-Jourdan Sciences Economiques (PSE) ( email )

48, BD Jourdan
75014 Paris
France

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