Structural Rationality in Dynamic Games

Marciano Siniscalchi*

*Corresponding author for this work

Research output: Contribution to journalArticlepeer-review

Abstract

The analysis of dynamic games hinges on assumptions about players' actions and beliefs at information sets that are not expected to be reached during game play. Under the standard notion of sequential rationality, these assumptions cannot be tested on the basis of observed, on-path behavior. This paper introduces a novel optimality criterion, structural rationality, which addresses this concern. In any dynamic game, structural rationality implies weak sequential rationality (Reny (1992)). If players are structurally rational, assumptions about on-path and off-path beliefs concerning off-path actions can be tested via suitable “side bets.” Structural rationality also provides a theoretical rationale for the use of a novel version of the strategy method (Selten (1967)) in experiments.

Original languageEnglish (US)
Pages (from-to)2437-2469
Number of pages33
JournalEconometrica
Volume90
Issue number5
DOIs
StatePublished - Sep 2022

Keywords

  • Conditional probability systems
  • sequential rationality
  • strategy method

ASJC Scopus subject areas

  • Economics and Econometrics

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