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Correlated Equilibrium As An Expression Of Bayesian Rationality

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Executive Summary

Correlated equilibrium is formulated in a manner that does away with the dichotomy usually perceived between the "Bayesian" and the "Game-theoretic" view of the world. From the Bayesian viewpoint, probabilities should be assignable to everything, including the prospect of a player choosing a certain strategy in a certain game. The so-called "Game-theoretic" viewpoint holds that probabilities can only be assigned to events not governed by rational decision makers; for the latter, one must substitute an equilibrium (or other game-theoretic) notion. The current formulation synthesizes the two viewpoints: Correlated equilibrium is viewed as the result of Bayesian rationality; the equilibrium condition appears as a simple maximization of utility on the part of each player, given his information.

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