Rationalizability and Monotonocity in Games with Incomplete Information

TL;DR

This paper explores how rationalizability and monotonicity properties manifest in incomplete information games with strategic complements or substitutes, providing a framework for understanding beliefs and choices.

Contribution

It introduces an assumption of weakly increasing differences and demonstrates how rationalizable choices are monotonic in players' beliefs and parameters.

Findings

Greater choice-parameter beliefs lead to greater optimal choices.

The greatest and least rationalizable choices are increasing in parameters.

An iterative procedure determines extremal rationalizable choices based on beliefs.

Abstract

This paper examines games with strategic complements or substitutes and incomplete information, where players are uncertain about the opponents' parameters. We assume that the players' beliefs about the opponent's parameters are selected from some given set of beliefs. One extreme is the case where these sets only contain a single belief, representing a scenario where the players' actual beliefs about the parameters are commonly known among the players. Another extreme is the situation where these sets contain all possible beliefs, representing a scenario where the players have no information about the opponents' beliefs about parameters. But we also allow for intermediate cases, where these sets contain some, but not all, possible beliefs about the parameters. We introduce an assumption of weakly increasing differences that takes both the choice belief and parameter belief of a player into account. Under this assumption, we demonstrate that greater choice-parameter beliefs leads to greater optimal choices. Moreover, we show that the greatest and least point rationalizable choice of a player is increasing in their parameter, and these can be determined through an iterative procedure. In each round of the iterative procedure, the lowest surviving choice is optimal for the lowest choice-parameter belief, while the greatest surviving choice is optimal for the highest choice-parameter belief.