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Prudent Equilibria and Strategic Uncertainty in Discontinuous Games

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  • Philippe Bich

    (CES - Centre d'économie de la Sorbonne - UP1 - Université Paris 1 Panthéon-Sorbonne - CNRS - Centre National de la Recherche Scientifique, PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École des Ponts ParisTech - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

Abstract

We introduce the new concept of prudent equilibrium to model strategic uncertainty, and prove it exists in large classes of discontinuous games. When the game is better-reply secure, we show that prudent equilibrium refines Nash equilibrium. In contrast with the current literature, we don't use probabilities to model players' strategies and beliefs about other players' strategies. We provide examples (first-price auctions, location game, Nash demand game, etc.) where the prudent equilibrium is the intuitive solution of the game.

Suggested Citation

  • Philippe Bich, 2016. "Prudent Equilibria and Strategic Uncertainty in Discontinuous Games," Working Papers halshs-01337293, HAL.
    • Handle: RePEc:hal:wpaper:halshs-01337293
    Note: View the original document on HAL open archive server: https://shs.hal.science/halshs-01337293
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    References listed on IDEAS

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    Cited by:

    1. Francesco Caruso & Maria Carmela Ceparano & Jacqueline Morgan, 2019. "Subgame Perfect Nash Equilibrium: A Learning Approach via Costs to Move," Dynamic Games and Applications, Springer, vol. 9(2), pages 416-432, June.
    2. Bich, Philippe, 2019. "Strategic uncertainty and equilibrium selection in discontinuous games," Journal of Economic Theory, Elsevier, vol. 183(C), pages 786-822.

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    Keywords

    prudent equilibrium; Nash equilibrium; refinement; strategic uncertainty; better-reply secure;
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