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Correlated equilibrium under costly disobedience

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  • Ozdogan, Ayca
  • Saglam, Ismail

Abstract

We extend Aumann’s (1974) model of correlated equilibrium by requiring each player to bear an exogenously given cost if s/he disobeys the recommendation of the mediator. Calling the modified solution the costly correlated equilibrium (costly-CE), we show that in any finite normal-form game that has an unpure Nash equilibrium, the set of costly-CE strictly expands even with an arbitrarily small increase in the disobedience cost provided that the game is non-trivial and there is room for expansion. We also study the effects of the disobedience cost on the total welfare of players and the value of mediation.

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  • Ozdogan, Ayca & Saglam, Ismail, 2021. "Correlated equilibrium under costly disobedience," Mathematical Social Sciences, Elsevier, vol. 114(C), pages 98-104.
    • Handle: RePEc:eee:matsoc:v:114:y:2021:i:c:p:98-104
    DOI: 10.1016/j.mathsocsci.2021.08.003
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    More about this item

    Keywords

    Correlated equilibrium; Disobedience cost;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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