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Deviations, Dynamics, and Equilibrium Refinements

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  • Rabin, Matthew
  • Sobel, Joel

Abstract

Many standard solution concepts rule out those Nash equilibria that are susceptible to deviations. We propose a framework for considering not only which equilibria are not susceptible to deviations, but also which equilibria are likely to persist in the long run because they are repeatedly deviated to. We call such equilibria recurrent. We explore which equilibria are recurrent based on the deviations underlying each of several prominent signaling refinements. We show that the set of recurrent equilibria based on Cho and Krep's (1987) intuitive criterion and Kohlberg and Mertens's (1986) NWBR criterion are precisely what those papers already predict. In contrast, we show that applying our framework to cheap-talk refinements proposed by Farrell (1993) and Matthews, Okuno-Fujiwara, and Postlewaite (1991) can 1) make those solution concepts more realistic, 2) guarantee existence, and 3) guarantee meaningful communication in at least one class of games where it is not guaranteed by either Farrell or MOP.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Theory.

Volume (Year): 68 (1996)
Issue (Month): 1 (January)
Pages: 1-25

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Handle: RePEc:eee:jetheo:v:68:y:1996:i:1:p:1-25

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Web page: http://www.elsevier.com/locate/inca/622869

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Cited by:
  1. Noldeke, G. & Samuelson, L., 1996. "A Dynamic Model of Equilibrium Selection in Signaling Markets," Working papers 9518r, Wisconsin Madison - Social Systems.
  2. Adrian Groot Ruiz & Theo Offerman & Sander Onderstal, 2014. "For those about to talk we salute you: an experimental study of credible deviations and ACDC," Experimental Economics, Springer, vol. 17(2), pages 173-199, June.
  3. Blume, A., 1996. "Information Transmission and Preference Similarity," Working Papers 96-04, University of Iowa, Department of Economics.
  4. Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, The Center for the Study of Rationality, Hebrew University, Jerusalem, revised Nov 2002.
  5. Wernerfelt, Birger, 2003. "Organizational Languages," Working papers 4278-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
  7. Olszewski, Wojciech, 2006. "Rich language and refinements of cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 128(1), pages 164-186, May.
  8. Kawagoe, Toshiji & Takizawa, Hirokazu, 2009. "Equilibrium refinement vs. level-k analysis: An experimental study of cheap-talk games with private information," Games and Economic Behavior, Elsevier, vol. 66(1), pages 238-255, May.
  9. Toshiji Kawagoe & Hirokazu Takizawa, 2005. "Why Lying Pays: Truth Bias in the Communication with Conflicting Interests," Discussion papers 05018, Research Institute of Economy, Trade and Industry (RIETI).
  10. Toshiji Kawagoe & Hirokazu Takizawa, 2005. "Why Lying Pays: Truth Bias in the Communication with Conflicting Interests," Experimental 0503005, EconWPA.

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