Penta, AntonioZuazo-Garin, Peio2024-01-182024-01-182022Penta A, Zuazo. Rationalizability, observability, and common knowledge. Rev Econ Stud. 2022;89(2):948-75. DOI: 10.1093/restud/rdab0470034-6527http://hdl.handle.net/10230/58742We study the strategic impact of players’ higher-order uncertainty over the observability of actions in general two-player games. More specifically, we consider the space of all belief hierarchies generated by the uncertainty over whether the game will be played as a static game or with perfect information. Over this space, we characterize the correspondence of a solution concept which captures the behavioural implications of Rationality and Common Belief in Rationality (RCBR), where “rationality” is understood as sequential whenever the game is dynamic. We show that such a correspondence is generically single-valued, and that its structure supports a robust refinement of rationalizability, which often has very sharp implications. For instance, (1) in a class of games which includes both zero-sum games with a pure equilibrium and coordination games with a unique efficient equilibrium, RCBR generically ensures efficient equilibrium outcomes (eductive coordination); (2) in a class of games which also includes other well-known families of coordination games, RCBR generically selects components of the Stackelberg profiles (Stackelberg selection); (3) if it is commonly known that player ’s action is not observable (e.g. because is commonly known to move earlier, etc.), in a class of games which includes all of the above RCBR generically selects the equilibrium of the static game most favourable to player (pervasiveness of first-mover advantage).application/pdfeng© The Author(s) 2021. Published by Oxford University Press on behalf of The Review of Economic Studies Limited. This is an Open Access article distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted reuse, distribution, and reproduction in any medium, provided the original work is properly cited.info:eu-repo/semantics/articlehttp://dx.doi.org/10.1093/restud/rdab047Eductive co-ordinationExtensive-form uncertaintyFirst-mover advantageKreps HypothesisHigher-order beliefsRationalizabilityRobustnessStackelberg selectionsinfo:eu-repo/semantics/openAccess