Noisy equilibrium selection in coordination games
We analyse symmetric coordination games à la Bryant (1983) where a number of players simultaneously choose efforts from a compact interval and the lowest effort determines the output of a public good. Assuming that payoffs are concave in the public good and linear in effort, this game has a continuum of Pareto-ranked equilibria. In a noicy variant of the model an error term is added to each player's choice before his effort is determined. An equilibrium of the original model is noise-proof if it can be approximated by equilibria of noisy games with vanishing noise. There is a unique noise-proof equilibrium and, as the noisy games are supermodular, this solution can be derived by an iterated dominance argument. Our results agree with the experimental findings in Van Huyck, Battalio and Beil (1990). We also show that the unperturbed game is a potential game and that the noise-proof equilibrium maximizes the potential.
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- Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, vol. 103(3), pages 441-63, August.
- Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1991. "Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games," The Quarterly Journal of Economics, MIT Press, vol. 106(3), pages 885-910, August.
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"Tacit coordination games, strategic uncertainty, and coordination failure,"
Levine's Working Paper Archive
1225, David K. Levine.
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- J. B. Van Huyck & R. C. Battalio & R. O. Beil, 2010. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 661465000000000393, David K. Levine.
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- Carlsson, Hans & Dasgupta, Sudipto, 1997. "Noise-Proof Equilibria in Two-Action Signaling Games," Journal of Economic Theory, Elsevier, vol. 77(2), pages 432-460, December.
- Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
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