Common prior assumption
Everyone starts from the same beliefs about how types are drawn, and differs only in what they privately went on to learn.
Often misread asReading the common prior as a claim that players hold the same beliefs during play, so any model in which two players disagree is thought to violate it.
How to see it
Same starting picture, different private news
Everyone is assumed to begin from the same view of how the world hands out private information, and to differ only because of what each of them went on to see. Disagreement is allowed. Disagreement about where the dice came from is not.
The checkThey may disagree freely once they have seen different things. What is shared is the starting distribution, before anybody has seen anything.
Try itTwo traders each expect the price to rise, each on a private tip. Ask whether a common prior forbids this. It does not. Now ask whether they could keep disagreeing while each knows the other disagrees. That is where the assumption bites.
Know these first
Leads on to
Easily confused with
Sources
- Harsanyi, J. C. (1967-68). Management Science 14(3), 159-182; 14(5), 320-334; 14(7), 486-502.
- Aumann, R. (1976). Annals of Statistics 4(6), 1236-1239.
- Osborne, M. & Rubinstein, A. (1994). MIT Press.