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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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  • Rabin, Matthew & Sobel, Joel, 1996. "Deviations, Dynamics, and Equilibrium Refinements," Journal of Economic Theory, Elsevier, vol. 68(1), pages 1-25, January.
  • Handle: RePEc:eee:jetheo:v:68:y:1996:i:1:p:1-25
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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. 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).
    3. Olszewski, Wojciech, 2004. "Informal communication," Journal of Economic Theory, Elsevier, vol. 117(2), pages 180-200, August.
    4. Andreas Blume, 1995. "Information Transmission and Preference Similarity," Game Theory and Information 9504002, University Library of Munich, Germany, revised 29 May 1996.
    5. Adrian Groot Ruiz & Theo Offerman & Sander Onderstal, 2014. "For those about to talk we salute you: an experimental study of credible deviations and ACDC," Experimental Economics, Springer;Economic Science Association, vol. 17(2), pages 173-199, June.
    6. Robert J. Aumann & Sergiu Hart, 2003. "Long Cheap Talk," Econometrica, Econometric Society, vol. 71(6), pages 1619-1660, November.
      • Robert J. Aumann & Sergiu Hart, 2002. "Long Cheap Talk," Discussion Paper Series dp284, The Federmann Center for the Study of Rationality, the Hebrew University, Jerusalem, revised Nov 2002.
    7. 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.
    8. Blume, Andreas & DeJong, Douglas V. & Kim, Yong-Gwan & Sprinkle, Geoffrey B., 2001. "Evolution of Communication with Partial Common Interest," Games and Economic Behavior, Elsevier, vol. 37(1), pages 79-120, October.
    9. 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.
    10. Olszewski, Wojciech, 2006. "Rich language and refinements of cheap-talk equilibria," Journal of Economic Theory, Elsevier, vol. 128(1), pages 164-186, May.
    11. de Groot Ruiz, Adrian & Offerman, Theo & Onderstal, Sander, 2015. "Equilibrium selection in experimental cheap talk games," Games and Economic Behavior, Elsevier, vol. 91(C), pages 14-25.
    12. Birger Wernerfelt, 2004. "Organizational Languages," Journal of Economics & Management Strategy, Wiley Blackwell, vol. 13(3), pages 461-472, September.

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