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Arms Races and Negotiations

  • Sandeep Baliga
  • Tomas Sjostrom

A state which does not desire an arms race may nevertheless acquire new weapons if it believes another state will acquire them. If each state assigns some arbitrarily small probability to the event that the other state has a dominant strategy to acquire more weapons, then a multiplier effect appears, and the unique Bayesian Nash equilibrium involves an arms race with probability one. However, if the prior probability that a player is a dominant strategy type is sufficiently small, then there is an equilibrium of the cheap-talk extension of the arms race game where the probability of an arms race is close to zero.

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Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 618897000000000766.

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Date of creation: 30 Apr 2003
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Handle: RePEc:cla:levarc:618897000000000766
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  1. Stephen Morris & Hyun Song Shin, 2000. "Global Games: Theory and Applications," Cowles Foundation Discussion Papers 1275R, Cowles Foundation for Research in Economics, Yale University, revised Aug 2001.
  2. Sandeep Baliga & Stephen Morris, 2000. "Coordination, Spillovers, and Cheap Talk," Discussion Papers 1301, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Carlsson, H. & Van Damme, E., 1990. "Global Games And Equilibrium Selection," Papers 9052, Tilburg - Center for Economic Research.
  4. Steven A. Matthews & Andrew Postlewaite, 1987. "Pre-Play Communication in Two-Person Sealed-Bid Double Auctions," Discussion Papers 744R, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  5. Morris, Stephen & Shin, Hyun Song, 1997. "Unique Equilibrium in a Model of Self-fulfilling Currency Attacks," CEPR Discussion Papers 1687, C.E.P.R. Discussion Papers.
  6. Banks, Jeffrey S. & Calvert, Randall L., 1992. "A battle-of-the-sexes game with incomplete information," Games and Economic Behavior, Elsevier, vol. 4(3), pages 347-372, July.
  7. Rubinstein, Ariel, 1989. "The Electronic Mail Game: Strategic Behavior under "Almost Common Knowledge."," American Economic Review, American Economic Association, vol. 79(3), pages 385-91, June.
  8. repec:ner:tilbur:urn:nbn:nl:ui:12-154416 is not listed on IDEAS
  9. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, vol. 53(2), pages 236-260, April.
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