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The refinement of Nash equilibrium based on equilibrium models of imperfectly rational behavior

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  • Velez, Rodrigo A.
  • Brown, Alexander L.

Abstract

This paper introduces a refinement of Nash equilibrium (NE) to determine the relevance of weakly dominated NE in games. We adapt Harsanyi (1973)'s concept of “approachability,” originally based on games with randomly disturbed payoffs, and extend it to a broader family that encompasses the most widely used equilibrium models of imperfectly rational behavior. We identify a singular NE refinement, approximate payoff monotone equilibrium (APME), that coincides with the set of NE that are approachable by regular quantal response equilibria as well as control cost models. We advocate for APME based on its 1) foundation in models that rationalize empirically observed behavior; 2) ability to discriminate between equilibria without automatically discarding weakly dominated behavior; and 3) computational simplicity in applications where the structure of NE is known. We illustrate the value of APME in three applications in which empirical studies suggest that weakly dominated NE are relevant.

Suggested Citation

  • Velez, Rodrigo A. & Brown, Alexander L., 2026. "The refinement of Nash equilibrium based on equilibrium models of imperfectly rational behavior," Games and Economic Behavior, Elsevier, vol. 157(C), pages 516-534.
    • Handle: RePEc:eee:gamebe:v:157:y:2026:i:c:p:516-534
    DOI: 10.1016/j.geb.2025.01.005
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    References listed on IDEAS

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    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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