Chapter 12. Epistemic Game Theory

Epistemic game theory formalizes assumptions about rationality and mutual beliefs in a formal language, then studies their behavioral implications in games. Specifically, it asks: what do different notions of rationality and different assumptions about what players believe about…what others believe about the rationality of players imply regarding play in a game? Being explicit about these assumptions can be important, because solution concepts are often motivated intuitively in terms of players’ beliefs and their rationality; however, the epistemic analysis may show limitations in these intuitions, reveal what additional assumptions are hidden in the informal arguments, clarify the concepts or show how the intuitions can be generalized. A further premise of this chapter is that the primitives of the model— namely, the hierarchies of beliefs—should be elicitable, at least in principle. Building upon explicit assumptions about elicitable primitives, we present classical and recent developments in epistemic game theory and provide characterizations of a nonexhaustive, but wide, range of solution concepts.