An Epistemic Model with Boundedly Rational Players

I propose a general and simple framework for studying epistemic foundations of noncooperative solution concepts: A player faces a strategic situation described by an epistemic picture, which is a set of statements written in a formal language. The player takes his epistemic picture as given; constructs a state space and a set of acts; forms preferences over acts; and selects an optimal act. The player has a finite level of reasoning: Into his state space, he includes all possible states of affairs for opponents with levels below his one. 

The object of study is the correspondence between epistemic pictures and behavior they generate. I provide sufficient conditions for the generated behavior to be robust with respect to (i) increasing precision of epistemic pictures; (ii) increasing players’ levels of reasoning; (iii) changing extensive-form representation of a given game. Additionally, I re-evaluate epistemic foundations of several key noncooperative solution concepts.

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