Utility proportional beliefs

Bach, C. W. and Perea, A. (2014) Utility proportional beliefs. International Journal of Game Theory, 43 (4). pp. 881-902. ISSN 1432-1270 doi: 10.1007/s00182-013-0409-3

Abstract/Summary

In game theory, basic solution concepts often conflict with experimental findings or intuitive reasoning. This fact is possibly due to the requirement that zero probability is assigned to irrational choices in these concepts. Here, we introduce the epistemic notion of common belief in utility proportional beliefs which also attributes positive probability to irrational choices, restricted however by the natural postulate that the probabilities should be proportional to the utilities the respective choices generate. Besides, we propose a procedural characterization of our epistemic concept. With regards to experimental findings common belief in utility proportional beliefs fares well in explaining observed behavior.