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Farishgted Rationality

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Working paper
Author/s: 
Dominik Karos, Laura Kasper
Issue number: 
RM/18/011
Series: 
GSBE Research Publications
Publisher: 
Maastricht University
Year: 
2018
Farsighted deviations are based on agents’ abilities to compare the outcome of a farsighted deviation to the status quo. However, agents do not account for deviations by others in case they do not change the status quo; so, they are not fully farsighted. We use extended expectation functions to capture a coalition’s belief about subsequent moves of other coalitions in both cases. We provide three stability and optimality axioms on coalition behavior and show that an expectation function satisfies these axioms if and only if it corresponds to an equilibrium of the abstract game that is stable with respect to coalitional deviations. We provide applications of our solution for games in characteristic function form and matching problems.
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