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Handbook of the Economics of Risk and Uncertainty
book

Handbook of the Economics of Risk and Uncertainty

by Mark Machina, W. Kip Viscusi
November 2013
Beginner content levelBeginner
896 pages
35h 10m
English
North Holland
Content preview from Handbook of the Economics of Risk and Uncertainty
Benjamin E. Hermalin
326
V
)
denote the payoff to a type-γ informed player in the equilibrium under analysis.
The Intuitive Criterion can now be formally given:
Denition (Intuitive Criterion). Consider an equilibrium. For each out-of-
equilibrium action of the informed player, a, let
If there is a type
γ
Ŵ(a)
\
Ŵ
0
such that
then the equilibrium fails the Intuitive Criterion.
The set
Ŵ
0
are types who do better in the equilibrium in question than they could rea-
sonably hope to do by deviating to a. For example, in the pooling PBE of Figure 6.5, if
a is warranty and high price, then
Ŵ
0
={
γ
L
}
(i.e., the set contains only the low-quality
type). T
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Publisher Resources

ISBN: 9780444536853