The Bayesian foundations of solution concepts of games* 1 (original) (raw)

We transform a non co-operati ve game into a-Bayesian decision problem for each player where the uncertainty faced by a player is the strategy choices of the other players, the pr iors of other players on the choice of other players, the priors over priors and so on.We provide a complete characterization between the extent of knowledge about the rationality of players and their ability to successfulIy eliminate strategies which are not best responses. This paper therefore provides the informational foundations of iteratively unàominated strategies and rationalizable strategic behavior (Bernheim (1984) and Pearce (1984». Moreover, sufficient condi tions are also found for Nash equilibrium behavior. We also provide Aumann's (1985) results on correlated equilibria. *This pape r is a substantially expanded and revised version of "The Bayesian Foundations of Rationalizable Strategic Behavior and Nash Equilibrium Behavior." We wish to acknowledge the tremendous help and useful discussions we have had with Roger Myerson who first brought our attention to the Armbruster and Bege (1979) paper. Discussion with David Hirshleifer, José Alexandre Scheinkman and Hugo Sonnenschein have also helped to clarify our ideas.