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Noisy Equilibrium Selection in Coordination Games

  • Ganslandt, Mattias

    ()

    (The Research Institute of Industrial Economics)

  • Carlsson, Hans

    (Lund University)

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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Paper provided by Research Institute of Industrial Economics in its series Working Paper Series with number 485.

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Length: 10 pages
Date of creation: 01 Jul 1997
Date of revision:
Publication status: Published in Economics Letters , 1998, pages 12.
Handle: RePEc:hhs:iuiwop:0485
Contact details of provider: Postal: Research Institute of Industrial Economics, Box 55665, SE-102 15 Stockholm, Sweden
Phone: +46 8 665 4500
Fax: +46 8 665 4599
Web page: http://www.ifn.se/
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  1. V. Crawford, 2010. "Adaptive Dynamics in Coordination Games," Levine's Working Paper Archive 404, David K. Levine.
  2. Carlsson, Hans, 1991. "A Bargaining Model Where Parties Make Errors," Econometrica, Econometric Society, vol. 59(5), pages 1487-96, September.
  3. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  4. John B Van Huyck & Raymond C Battalio & Richard O Beil, 1997. "Tacit coordination games, strategic uncertainty, and coordination failure," Levine's Working Paper Archive 1225, David K. Levine.
  5. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, June.
  6. 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.
  7. 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.
  8. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  9. Drew Fudenberg & Jean Tirole, 1991. "Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262061414, June.
  10. 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.
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