Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions

Starting from Hendricks and McAfee's (2000) example of the Allies' decision to feint at Calais and attack at Normandy on D-Day, this paper models misrepresentation of intentions to competitors or enemies. Allowing for the possibility of bounded strategic rationality and rational players' responses to it yields a sensible account of lying via costless, noiseless messages. In many cases the model has generically unique pure-strategy sequential equilibria, in which rational players exploit boundedly rational players, but are not themselves fooled. In others, the model has generically essentially unique mixed-strategy sequential equilibria, in which rational players' strategies protect all players from exploitation.

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