Finite-order type spaces and applications (Q1945840)

The paper deals with finite-order beliefs in Bayesian games. The introduced framework (consistent finite-order priors, finite-order projection type space, finite-order total variation distance) is intended to be a remedy for several unpleasant phenomena and complicacy of existing bounded rationality models. The motivation stems from two questions. 1. What are the upper bounds on the orders of strategically relevant beliefs? (Beliefs of order not higher than 2 often suffice). 2. To what extent the equilibria are robust? (Stability on perturbation of information structure and convergence of equilibria according to the rising order of beliefs, can be secured). A thorough discussion includes the Coase conjecture, robust mechanism design and heterogeneous priors to name a few features. This makes the article worth reading for less game-theoretically inclined audience.