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Set of "rationalizable actions"

Economics Asked by Friendlyperson2020 on January 16, 2021

What does it mean if a question asks me to find the set of "rationalizable actions" for a given game?

One Answer

A strategy is rationalizable if it survives an iterated elimination of strictly dominated strategies. That is first you eliminate all strategies that are never a best response independent what action the other player chooses. Then you only consider the strategies that survive and repeat this step: eliminate all strategies that are never a best response independent what action from the set of surviving strategies the other player chooses.

The set of rationalizable strategies is then a set that only contains best responses to some rationalizable strategy. Therefore this is a larger set than Nash equilibria, which are best responses against each other.

Correct answer by Bayesian on January 16, 2021

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