Working Paper BETA #2019-39

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Title : Individually-Consistent Sequential Equilibrium

Author(s) : Gisèle Umbhauer, Arnaud Wolff

Abstract : We introduce a new equilibrium concept, called the individually-consistent sequential equilibrium (ICSE). This concept is more permissive than the sequential equilibrium (Kreps, Wilson (1982)) but more demanding than the self-confirming one (Fudenberg, Levine (1993)). We require that players share common beliefs on the actions planned to be played at all the information sets, but not on the potential deviations. Therefore, in contrast to Kreps, Wilson (1982), we allow different players to have in mind different perturbation systems, or alternative hypotheses. This is motivated by the fact that beliefs about unobserved events are by essence not verifiable.

Key-words : Sequential Equilibrium, Consistency, Perturbations, Beliefs

JEL Classification : C72