TY - JOUR
T1 - Psychological games and sequential rationality
AU - Geanakoplos, John
AU - Pearce, David
AU - Stacchetti, Ennio
N1 - Funding Information:
We are grateful to Faruk GUI for important suggestions. We also thank an anonymous referee for his comments, and the National Science Foundation for its financial support.
PY - 1989/3
Y1 - 1989/3
N2 - In psychological games the payoff to each player depends not only on what every player does but also on what he thinks every player believes, and on what he thinks they believe others believe, and so on. In equilibrium, beliefs are assumed to correspond to reality. Yet psychological games and psychological equilibria allow one to model belief-dependent emotions such as anger and surprise that are problematic for conventional game theory. We are particularly interested in issues of sequential rationality for psychological games. We show that although backward induction cannot be applied, and "perfect" psychological equilibria may not exist, subgame perfect and sequential equilibria always do exist.
AB - In psychological games the payoff to each player depends not only on what every player does but also on what he thinks every player believes, and on what he thinks they believe others believe, and so on. In equilibrium, beliefs are assumed to correspond to reality. Yet psychological games and psychological equilibria allow one to model belief-dependent emotions such as anger and surprise that are problematic for conventional game theory. We are particularly interested in issues of sequential rationality for psychological games. We show that although backward induction cannot be applied, and "perfect" psychological equilibria may not exist, subgame perfect and sequential equilibria always do exist.
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U2 - 10.1016/0899-8256(89)90005-5
DO - 10.1016/0899-8256(89)90005-5
M3 - Article
AN - SCOPUS:0002813641
SN - 0899-8256
VL - 1
SP - 60
EP - 79
JO - Games and Economic Behavior
JF - Games and Economic Behavior
IS - 1
ER -