Hierarchy of beliefs

Construction by Jean-François Mertens and Zamir implementing with John Harsanyi's proposal to model games with incomplete information by supposing that each player is characterized by a privately known type that describes his feasible strategies and payoffs as well as a probability distribution over other players' types.[1]

Such probability distribution at the first level can be interpreted as a low level belief of a player. One level up the probability on the belief of other players is interpreted as beliefs on beliefs. A recursive universal construct is built—in which player have beliefs on their beliefs at different level—this construct is called the hierarchy of beliefs.

The result is a universal space of types in which, subject to specified consistency conditions, each type corresponds to the infinite hierarchy of his probabilistic beliefs about others' probabilistic beliefs. They also showed that any subspace can be approximated arbitrarily closely by a finite subspace.

Another popular example of the usage of the construction is the Prisoners and hats puzzle. And so is Robert Aumann's construction of common knowledge.[2]

References

Jean -François Mertens and Shmuel Zamir (1985-03-01). "Formulation of Bayesian analysis for games with incomplete information". International Journal of Game Theory. 14 (1): 1–29. doi:10.1007/BF01770224.
Herbert Gintis (16 March 2009). The bounds of reason: game theory and the unification of the behavioral sciences. Princeton University Press. p. 158. ISBN 978-0-691-14052-0. Retrieved 3 March 2012.

Topics in game theory
Definitions	Cooperative game Determinacy Escalation of commitment Extensive-form game First-player and second-player win Game complexity Graphical game Hierarchy of beliefs Information set Normal-form game Preference Sequential game Simultaneous game Simultaneous action selection Solved game Succinct game
Equilibrium concepts	Nash equilibrium Subgame perfection Mertens-stable equilibrium Bayesian Nash equilibrium Perfect Bayesian equilibrium Trembling hand Proper equilibrium Epsilon-equilibrium Correlated equilibrium Sequential equilibrium Quasi-perfect equilibrium Evolutionarily stable strategy Risk dominance Core Shapley value Pareto efficiency Gibbs equilibrium Quantal response equilibrium Self-confirming equilibrium Strong Nash equilibrium Markov perfect equilibrium
Strategies	Dominant strategies Pure strategy Mixed strategy Strategy-stealing argument Tit for tat Grim trigger Collusion Backward induction Forward induction Markov strategy
Classes of games	Symmetric game Perfect information Repeated game Signaling game Screening game Cheap talk Zero-sum game Mechanism design Bargaining problem Stochastic game Mean field game n-player game Large Poisson game Nontransitive game Global game Strictly determined game Potential game
Games	Go Chess Infinite chess Checkers Tic-tac-toe Prisoner's dilemma Gift-exchange game Optional prisoner's dilemma Traveler's dilemma Coordination game Chicken Centipede game Volunteer's dilemma Dollar auction Battle of the sexes Stag hunt Matching pennies Ultimatum game Rock paper scissors Pirate game Dictator game Public goods game Blotto game War of attrition El Farol Bar problem Fair division Fair cake-cutting Cournot game Deadlock Diner's dilemma Guess 2/3 of the average Kuhn poker Nash bargaining game Induction puzzles Trust game Princess and Monster game Rendezvous problem
Theorems	Arrow's impossibility theorem Aumann's agreement theorem Folk theorem Minimax theorem Nash's theorem Purification theorem Revelation principle Zermelo's theorem
Key figures	Albert W. Tucker Amos Tversky Antoine Augustin Cournot Ariel Rubinstein Claude Shannon Daniel Kahneman David K. Levine David M. Kreps Donald B. Gillies Drew Fudenberg Eric Maskin Harold W. Kuhn Herbert Simon Hervé Moulin Jean Tirole Jean-François Mertens Jennifer Tour Chayes John Harsanyi John Maynard Smith John Nash John von Neumann Kenneth Arrow Kenneth Binmore Leonid Hurwicz Lloyd Shapley Melvin Dresher Merrill M. Flood Olga Bondareva Oskar Morgenstern Paul Milgrom Peyton Young Reinhard Selten Robert Axelrod Robert Aumann Robert B. Wilson Roger Myerson Samuel Bowles Suzanne Scotchmer Thomas Schelling William Vickrey
See also	All-pay auction Alpha–beta pruning Bertrand paradox Bounded rationality Combinatorial game theory Confrontation analysis Coopetition Evolutionary game theory First-move advantage in chess Game mechanics Glossary of game theory List of game theorists List of games in game theory No-win situation Solving chess Topological game Tragedy of the commons Tyranny of small decisions

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