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Deviations, Dynamics and Equilibrium Refinements

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  • Matthew Rabin and Joel Sobel.

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 University of California at Berkeley in its series Economics Working Papers with number 93-211.

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Date of creation: 01 May 1993
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Handle: RePEc:ucb:calbwp:93-211

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Postal: University of California at Berkeley, Berkeley, CA USA
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Cited by:
  1. repec:att:wimass:9518 is not listed on IDEAS
  2. Noldeke, Georg & Samuelson, Larry, 1997. "A Dynamic Model of Equilibrium Selection in Signaling Markets," Journal of Economic Theory, Elsevier, vol. 73(1), pages 118-156, March.
  3. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
  4. 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).
  5. Birger Wernerfelt, 2004. "Organizational Languages," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 461-472, 09.
  6. Blume, A., 1997. "Information Transmission and Preference Similarity," Discussion Paper 1997-66, Tilburg University, Center for Economic Research.
  7. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
  8. Toshiji Kawagoe & Hirokazu Takizawa, 2005. "Why Lying Pays: Truth Bias in the Communication with Conflicting Interests," Experimental 0503005, EconWPA.
  9. Olszewski, Wojciech, 2006. "Rich language and refinements of cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 128(1), pages 164-186, May.
  10. 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.

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