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Interdependent Preferences and Strategic Distinguishability

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Microsoft Word - SSRN_cover1772.doc Electronic copy available at: http://ssrn.com/abstract=1684570 Cowles Foundation for Research in Economics at Yale University Cowles Foundation Discussion Paper No. 1772 INTERDEPENDENT PREFERENCES AND STRATEGIC DISTINGUISHABILITY Dirk Bergemann, Stephen Morris and Satoru Takahashi September 2010 An author index to the working papers in the Cowles Foundation Discussion Paper Series is located at: http://cowles.econ.yale.edu/ This paper can be downloaded without charge from the Social Science Research Network Electronic Paper Collection: http://ssrn.com/abstract=1684570 Electronic copy available at: http://ssrn.com/abstract=1684570 Interdependent Preferences and Strategic Distinguishability� Dirk Bergemanny Stephen Morrisz Satoru Takahashix September 2010 Abstract A universal type space of interdependent expected utility preference types is constructed from higher-order preference hierarchies describing (i) an agent s (unconditional) preferences over a lottery space; (ii) the agent s preference over Anscombe-Aumann acts conditional on the unconditional preferences; and so on. Two types are said to be strategically indistinguishable if they have an equilibrium action in common in any mechanism that they play. We show that two types are strategically indis- tinguishable if and only if they have the same preference hierarchy. We examine how this result extends to alternative solution concepts and strategic relations between types. Keywords: Interdependent Preferences, Higher-Order Preference Hierarchy, Universal Type Space, Strategic Distinguishability. Jel Classification: C79, D82, D83. �The rst and second author acknowledge nancial support through NSF Grant SES 0851200. We are grateful for comments from seminar/conference participants at Harvard/MIT, Northwestern, Yale, Warwick, Oxford, NYU, Columbia, Chicago, H

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