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Heterogeneously Perceived Incentives in Dynamic Environments: Rationalization, Robustness and Unique Selections
Theoretical Economics · Submitted 14 May 2021
abstract compiled · 2026-09-23 · no language-model review
The authors' main claim We find that apparently negligible disagreements greatly affect how agents interpret information and assess the optimality of subsequent behavior: When knowledge of the state space is only 'almost common', strategic uncertainty may be greater when choices are rationalized than when they are not--forward and backward induction predictions, respectively, and while backward induction predictions are robust to small disagreements about the state space, forward induction predictions are not.
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The abstract, sentence by sentence
In dynamic settings each economic agent's choices can be revealing of her private information. This elicitation via the rationalization of observable behavior depends each agent's perception of which payoff-relevant contingencies other agents persistently deem as impossible. We formalize the potential heterogeneity of these perceptions as disagreements at higher-orders about the set of payoff states of a dynamic game. We find that apparently negligible disagreements greatly affect how agents interpret information and assess the optimality of subsequent behavior: When knowledge of the state space is only 'almost common', strategic uncertainty may be greater when choices are rationalized than when they are not--forward and backward induction predictions, respectively, and while backward induction predictions are robust to small disagreements about the state space, forward induction predictions are not. We also prove that forward induction predictions always admit unique selections a la Weinstein and Yildiz (2007) (also for spaces not satisfying richness) and backward induction predictions do not.
background contribution method result interpretation main claim
| # | sentence | role | the authors' own work | states the main conclusion | strength |
|---|---|---|---|---|---|
| s0 | In dynamic settings each economic agent's choices can be revealing of her private information. | background 1.00 | 0.08 | 0.03 | asserted 0.52 |
| s1 | This elicitation via the rationalization of observable behavior depends each agent's perception of which payoff-relevant contingencies other agents persistently deem as impossible. | background 0.87 | 0.17 | 0.09 | asserted 1.00 |
| s2 | We formalize the potential heterogeneity of these perceptions as disagreements at higher-orders about the set of payoff states of a dynamic game. | method 0.63 | 0.78 | 0.05 | asserted 0.93 |
| s3 | We find that apparently negligible disagreements greatly affect how agents interpret information and assess the optimality of subsequent behavior: When knowledge of the state space is only 'almost common', strategic uncertainty may be greater when choices are rationalized than when they are not--forward and backward induction predictions, respectively, and while backward induction predictions are robust to small disagreements about the state space, forward induction predictions are not. | result 1.00 | 0.94 | 0.68 | asserted 0.77 |
| s4 | We also prove that forward induction predictions always admit unique selections a la Weinstein and Yildiz (2007) (also for spaces not satisfying richness) and backward induction predictions do not. | result 0.99 | 0.89 | 0.25 | asserted 1.00 |
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Original abstract
In dynamic settings each economic agent's choices can be revealing of her private information. This elicitation via the rationalization of observable behavior depends each agent's perception of which payoff-relevant contingencies other agents persistently deem as impossible. We formalize the potential heterogeneity of these perceptions as disagreements at higher-orders about the set of payoff states of a dynamic game. We find that apparently negligible disagreements greatly affect how agents interpret information and assess the optimality of subsequent behavior: When knowledge of the state space is only 'almost common', strategic uncertainty may be greater when choices are rationalized than when they are not--forward and backward induction predictions, respectively, and while backward induction predictions are robust to small disagreements about the state space, forward induction predictions are not. We also prove that forward induction predictions always admit unique selections a la Weinstein and Yildiz (2007) (also for spaces not satisfying richness) and backward induction predictions do not.
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