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An Approach to Equilibrium Selection

  • Akihiko Matsui
  • Kiminori Matsuyama

We consider equilibrium selection in 2x2 bimatrix games with two strict Nash equilibria in a random matching framework. The players seek to maximize the discounted payoffs, but are restricted to make a short run commitment. Modeling the friction this way yields equilibrium dynamics of the behavior patters in the society. We define and characterize an absorbing and globally attractive state in this dynamics. It is shown that, as friction becomes arbitrarily small, a strict Nash equilibrium outcome becomes unique absorbing and globally attractive if and only if it satisfies the Harsanyi/Selton notion of risk-dominance criterion.

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File URL: http://www.kellogg.northwestern.edu/research/math/papers/970.pdf
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Paper provided by Northwestern University, Center for Mathematical Studies in Economics and Management Science in its series Discussion Papers with number 970.

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Date of creation: Nov 1990
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Handle: RePEc:nwu:cmsems:970
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  8. Matsuyama, Kiminori, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Wiley Blackwell, vol. 59(2), pages 375-88, April.
  9. Kalai, Ehud & Lehrer, Ehud, 1991. "Rational Learning Leads to Nash Equilibrium," Working Papers 91-18, C.V. Starr Center for Applied Economics, New York University.
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  14. Gilboa, Itzhak & Matsui, Akihiko, 1991. "Social Stability and Equilibrium," Econometrica, Econometric Society, vol. 59(3), pages 859-67, May.
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  18. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  19. Kiminori Matsuyama, 1990. "Increasing Returns, Industrialization and Indeterminacy of Equilibrium," Discussion Papers 878, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Itzhak Gilboa & Dov Samet, 1991. "Absorbent Stable Sets," Discussion Papers 935, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  21. Boylan, Richard T., 1992. "Laws of large numbers for dynamical systems with randomly matched individuals," Journal of Economic Theory, Elsevier, vol. 57(2), pages 473-504, August.
  22. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-66, May.
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  24. Carlsson, H. & van Damme, E.E.C., 1989. "Global payoff uncertainty and risk dominance," Discussion Paper 1989-33, Tilburg University, Center for Economic Research.
  25. Akihiko Matsui, 1989. "Cheap Talk and Cooperation in the Society," Discussion Papers 848, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  26. Kiminori Matsuyama, 1991. "Custom Versus Fashion: Hysteresis and Limit Cycles in a Random Matching Game," Discussion Papers 940, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  27. Judd, Kenneth L., 1985. "The law of large numbers with a continuum of IID random variables," Journal of Economic Theory, Elsevier, vol. 35(1), pages 19-25, February.
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