Credible sets

Abstract

A credible set is the set of stable states of an expectation satisfying internal and external stability as defined in Dutta and Vohra (2017). We show that credible sets are characterized by two fundamental coalitional rationality axioms: basic coalitional rationality and farsighted rationality. Credible sets exist in a wide range of environments, including all finite games, and they provide a unifying framework for organizing prominent notions in the farsighted stability literature. Influential solution concepts such as the largest consistent set, the farsighted stable set, the (strong) rational expectations farsighted stable set, and the stable set when it does not suffer from the Harsanyi critique are all particular refinements of credible sets.