Equilibrium Selection with Payoff-Dependent Mistakes
AbstractThis paper studies equilibrium selection via stochastic dynamics in the style of Young (Econometrica 61, 1993, 57-84), when the mistake probabilities are allowed to depend on their expected payoffs. Although any strict equilibrium can be selected with properly constructed state-dependent mistakes (Bergin and Lipman, Econometrica, 64, 1996, 943-956), reasonable assumptions on state dependence could produce a consistent equilibrium selection. The main analysis shows how payoff dependency and payoffs interact to determine a long-run equilibrium and characterizes the selection relating to the traditional notions of risk dominance, payoff dominance, and maxmin in 2x2 games
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Bibliographic InfoPaper provided by Research Institute for Market Economy, Sogang University in its series Working Papers with number 1115.
Length: 22 pages
Date of creation: 2011
Date of revision:
Equilibrium selection; stochastic stability; coordination game; payoff dependent mistake;
Find related papers by JEL classification:
- C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-11-28 (All new papers)
- NEP-GTH-2011-11-28 (Game Theory)
- NEP-MIC-2011-11-28 (Microeconomics)
- NEP-ORE-2011-11-28 (Operations Research)
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