A Behavioral Test and Classification of Solution Concepts in Games

We formalize three leading rationality approaches in a general game environment: rational optimism, conservatism, and prudence (or maximin rationality). This formalization leads to the formulation of a behavioral test of rationality in static and dynamic games. We then test 12 important concepts of myopic and farsighted rationality for such games, comprising the von Neumann-Morgenstern stable sets, the Nash equilibrium, the core, the Harsanyi’s stable sets, and their most prominent descendants. While most of these solution concepts are either rationally optimistic or conservative, all fail the prudence test. We find that the prudence criterion addresses a lack of maximality and anticipation in both the rationally optimistic and the conservative approaches and is therefore more demanding.