The analysis of dynamic games hinges on assumptions about players' actions and beliefs at information sets that are not expected to be reached during game play. However, under the standard assumption that players are sequentially rational, beliefs at such information sets cannot be elicited. Hence, key concepts such as backward and forward induction are not directly testable on the basis of observed behavior. This paper introduces a novel optimality criterion, structural rationality, which addresses this concern. In any dynamic game, structural rationality implies sequential rationality. In addition, if players are structurally rational, their beliefs can be elicited via the strategy method (Selten, 1967). In addition, structural rationality  is consistent with experimental evidence about play in the extensive and strategic form,  and justifies the use of the strategy method in experiments.

Presented by Marciano Siniscalchi, Northwestern University.

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School of Economics seminars are the main academic seminar series held on a Friday. These seminars are presented by guest researchers and enable School of Economics academics to network with other academics from around Australia and internationally.


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