CFDP 1772R3

Interdependent Preferences and Strategic Distinguishability

Author(s): 

Publication Date: September 2010

Revision Date: August 2016

Pages: 53

Abstract: 

We study agents whose expected utility preferences are interdependent for informational or psychological reasons. We characterize when two types can be “strategically distinguished” in the sense that they are guaranteed to behave differently in some finite mechanism. We show that two types are strategically distinguishable if and only if they have different hierarchies of interdependent preferences. The same characterization applies for rationalizability, equilibrium, and any interim solution concept in between. Our results generalize and unify results of Abreu and Matsushima (1992), who characterize strategic distinguishability on fixed finite type spaces, and Dekel, Fudenberg, and Morris (2006), (2007), who characterize strategic distinguishability without interdependent preferences.

Keywords: 

Interdependent preferences, Higher-order preference hierarchy, Hierarchy of Preferences, Strategic distinguishability

JEL Classification Codes:  C79, D82, D83