Lexiocographic Refinements of Nash Equilibrium

Abstract

The fundamental idea of game theory is that each player in the game acts in his own best interests, given the actions of the other players. Nash equilibrium makes this idea precise by defining each player's best interests as the maximization of his expected utility, where the expectation is taken with respect to the (mixed) strategies played by the other players. New equilibrium concepts and refinements of old equilibrium concepts should adhere to this fundamental idea of self-interested action. This is to say, they must be justified in decision-theoretic terms. A notion of "self-interest" must be defined by specifying the preferences of the players, and equilibrium must be defined with respect to these preferences. This paper characterizes preferences that justify perfect and proper equilibrium as the outcome of rational, self-interested behavior.Center for Research on Economic and Social Theory, Department of Economics, University of Michiganhttp://deepblue.lib.umich.edu/bitstream/2027.42/100637/1/ECON113.pd