Presenting Full Farsighted Rationality at 12:15-13:30 in QA406.
On 13th February 2019 we have Laura Kasper of Maastricht University and Saarland University visiting us. She is going to give a seminar titled Full Farsighted Rationality at 12:15-13:30 in room A406 in Building Q, Budapest University of Technology and Economics, Faculty of Economic and Social Sciences, Magyar tudósok körútja 2, 1117 Budapest. Sandwiches will be provided. Please register.
Abstract: An abstract game consists of a set of states and specifies what coalitions are allowed to replace one state by another one. Agents are called farsighted if they compare the status quo to the long term outcome following their deviation rather than to the state they actually deviate to. What the literature has ignored so far is that if a coalition does not move out of the status quo, they might still expect another coalition to do so. Specifically, above definition of farsightedness implies that agents ignore this possibility in their reasoning. So, in fact, agents are not fully farsighted. Expectation functions assign to each state a (potentially) different state and a coalition that moves from the former to the latter, thereby creating paths between states. This endows agents with an expectation about what any potential deviation entails, namely the path of the prescribed further moves. We extend these functions by capturing coalitions’ expectations about the consequences of not moving out of a state. We impose three stability and optimality axioms on extended expectation functions that reflect full farsightedness and rationality. We then show that an expectation function satisfies our axioms if and only if it can be associated with a non-cooperative equilibrium of the abstract game. We finally apply our solution to games in characteristic function form and matching problems.