RATIONALIZABLE CONJECTURAL EQUILIBRIUM - BETWEEN NASH AND RATIONALIZABILITY

Static equilibria can be viewed as steady states of recurring play of a game Such steady states in which players do not perfectly observe th e actions of others need not be Nash equilibria. This paper suggests a static solution concept, rationalizable conjectural equilibrium, that corresponds to such steady states. To present it, the basic model of a normal form game is enriched by specifying the signal, that players get about others' actions. The solution is a profile of actions such t hat each player's action is optimal given that it is common knowledge that all players maximize utility given their signals. (C) 1994 Academ ic Press, Inc.