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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

Paper provided by Department of Economics, Institute for Business and Economic Research, UC Berkeley in its series Department of Economics, Working Paper Series with number qt40s882v6.

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Date of creation: 01 May 1993
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Handle: RePEc:cdl:econwp:qt40s882v6

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Related research

Keywords: deviations; dynamics; equilibrium; intuitive criterion; never a weak best response; signaling refinements; stiglitz critique; Social and Behavioral Sciences;

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Cited by:
  1. Toshiji Kawagoe & Hirokazu Takizawa, 2005. "Why Lying Pays: Truth Bias in the Communication with Conflicting Interests," Experimental 0503005, EconWPA.
  2. Andreas Blume, 1996. "Information Transmission and Preference Similarity," Game Theory and Information 9605004, EconWPA.
  3. Gerorg N´┐Żldeke & Larry Samuelson, . "A Dynamic Model of Equilibrium Selection In Signaling Markets," ELSE working papers 038, ESRC Centre on Economics Learning and Social Evolution.
  4. Wernerfelt, Birger, 2003. "Organizational Languages," Working papers 4278-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Olszewski, Wojciech, 2006. "Rich language and refinements of cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 128(1), pages 164-186, May.
  6. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
  7. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
  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).

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