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Selton's Horse (Posterior Lottery Model)

The document discusses game theory concepts including: 1) Transforming extensive form games into normal (strategic) form and analyzing stability diagrams. 2) A Naive Bayesian approach where players have a prior vector of beliefs and choose strategies based on incomplete priors about other players. 3) The difference between credible and incredible threats, where credible threats align with backward induction and incredible threats result in Nash equilibria not derived from backward induction. 4) The concepts of common knowledge of rationality (CKR) and consistent alignment of beliefs (CAB).

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Abraham Jyothimon
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150 views3 pages

Selton's Horse (Posterior Lottery Model)

The document discusses game theory concepts including: 1) Transforming extensive form games into normal (strategic) form and analyzing stability diagrams. 2) A Naive Bayesian approach where players have a prior vector of beliefs and choose strategies based on incomplete priors about other players. 3) The difference between credible and incredible threats, where credible threats align with backward induction and incredible threats result in Nash equilibria not derived from backward induction. 4) The concepts of common knowledge of rationality (CKR) and consistent alignment of beliefs (CAB).

Uploaded by

Abraham Jyothimon
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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(ref:general-theory-equilibrium-selection-games-selton,Harsayini)

Transformation of Extensive form game to strategic(or Normal form) game


Stability diagram of the game
Nave Bayesian Approach
Given the complete prior vector,p entertained by the Players
Expectations of each player,i about theother players strategies will be expressed
by the
i-incomplete prior vectorp-iderived from p.(ie,without including p vector)
ie, he will choose a strategyqiothat is his Best reply to

Credible & Incredible Threats


A threat is noncredible (incredible) if it is not in the player's interest to
carry out this threat when he has an opportunity to do so.
In a game of perfect information, a credible threat can be derived from
backward induction. An incredible threat results in a Nash equilibrium
that cannot be derived by backward induction.

Common knowledge of rationality (CKR) and consistent


alignment of beliefs (CAB)

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