Due to the externalities, in normal form games a deviation changes the payoff of all players inducing a retaliation by the remaining or residual players. The stability of an outcome depends on the expectations potential deviators have about this reaction, but so far no satisfactory theory has...

In a partition function game the worth of a deviation depends on the reaction of outsiders; the beliefs about the possible reaction are crucial for the stability of an existing agreement. In contrast with existing approaches we look at the residual reaction from the point of view of the residual...