Rationality and Coherent Theories of Strategic Behavior

By Faruk Gul
1992| Working Paper No. 1190

A non-equilibrium model of rational strategic behavior that can be viewed as a refinement of (normal form) rationalizability is developed for both normal form and extensive form games. The resulting solution concept, called a tau-theory, allows for exogenous restrictions on the beliefs of rational prayers. The solution concept is used to analyze the main concerns of the Nash equilibrium refinements literature such as dominance, iterative dominance, extensive form rationality, invariance, backward induction and forward induction. The relationship between tau-theories and dynamic learning is investigated.