The intuitive and divinity criterion: Interpretation and step-by-step examples

Abstract

The paper presents an intuitive explanation of the Cho and Kreps' (1987) Intuitive Criterion, and the Banks and Sobel's (1987) Divinity Criterion (also referred as D1-Criterion). We provide multiple examples in which students can understand, step-by-step, the two main phases involved in these refinement criteria. Furthermore, we present economic settings in which the Cho and Kreps' (1987) Intuitive Criterion does not restrict the set of equilibria, while the Banks and Sobel's (1987) Divinity Criterion help refine the set of admissible separating equilibria in signaling games. © 2011 Berkeley Electronic Press. All rights reserved.