Beliefs About the Future and Temporal Invariance"

GUIDO MARTIRENA; FEDERICO WEINSCHELBAUM

Bariloche

Conferencia; LII Reunión Anual de la Asocación Argentina de Economía Política, Universidad Nacional de Río Negro, 15-17 de noviembre de 2017.; 2017

Asocación Argentina de Economía Política, Universidad Nacional de Río Negro,

Thompson [1952] identifies a non-essential transformation: ?interchange of decision nodes?. The implication from this seminal work is that permuting the order of simultaneous plays should be irrelevant for the equilibrium prediction. However, this is not the case. Most equilibrium refinements that operate on the extensive-form imposing structure on beliefs off-the-equilibrium path fail to satisfy this basic idea of ?temporal invariance?.To adress this issue, we propose a new equilibrium concept based on adequatelydefined beliefs (i.e. beliefs that treat past and future actions in the same way) that satisfies the following desirable properties: Bayesian Updating, Sequential Rationality, Backward Induction, Forward Induction, and Temporal invariance.