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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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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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  1. Matsui, Akihiko, 1992. "Best response dynamics and socially stable strategies," Journal of Economic Theory, Elsevier, vol. 57(2), pages 343-362, August.
  2. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
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  4. Diamond, Douglas W & Dybvig, Philip H, 1983. "Bank Runs, Deposit Insurance, and Liquidity," Journal of Political Economy, University of Chicago Press, vol. 91(3), pages 401-19, June.
  5. D. Fudenberg & C. Harris, 2010. "Evolutionary Dynamics with Aggregate Shocks," Levine's Working Paper Archive 496, David K. Levine.
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  7. Jeroen M. Swinkels, 1991. "Adjustment Dynamics and Rational Play in Games," Discussion Papers 1001, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  8. Carlsson, H. & Van Damme, E., 1989. "Global Payoff Uncertainty And Risk Dominance," Papers 8933, Tilburg - Center for Economic Research.
  9. Gilboa, Itzhak & Matsui, Akihiko, 1991. "Social Stability and Equilibrium," Econometrica, Econometric Society, vol. 59(3), pages 859-67, May.
  10. Kohlberg, Elon & Mertens, Jean-Francois, 1986. "On the Strategic Stability of Equilibria," Econometrica, Econometric Society, vol. 54(5), pages 1003-37, September.
  11. Kiminori Matsuyama, 1992. "A Simple Model of Sectoral Adjustment," Review of Economic Studies, Oxford University Press, vol. 59(2), pages 375-387.
  12. 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, December.
  13. Akihiko Matsui, 1989. "Cheap Talk and Cooperation in the Society," Discussion Papers 848, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  14. Paul Krugman, 1990. "Increasing Returns and Economic Geography," NBER Working Papers 3275, National Bureau of Economic Research, Inc.
  15. Joseph Farrell & Garth Saloner, 1985. "Standardization, Compatibility, and Innovation," RAND Journal of Economics, The RAND Corporation, vol. 16(1), pages 70-83, Spring.
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  17. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-66, May.
  18. David Canning, 1989. "Convergence to Equilibrium in a Sequence for Games with Learning," STICERD - Theoretical Economics Paper Series 190, Suntory and Toyota International Centres for Economics and Related Disciplines, LSE.
  19. Ehud Kalai & Ehud Lehrer, 1990. "Rational Learning Leads to Nash Equilibrium," Discussion Papers 895, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  20. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  21. Kiminori Matsuyama, 1991. "Increasing Returns, Industrialization, and Indeterminacy of Equilibrium," The Quarterly Journal of Economics, Oxford University Press, vol. 106(2), pages 617-650.
  22. Milgrom, Paul & Roberts, John, 1990. "Rationalizability, Learning, and Equilibrium in Games with Strategic Complementarities," Econometrica, Econometric Society, vol. 58(6), pages 1255-77, November.
  23. 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.
  24. Itzhak Gilboa & Akihiko Matsui, 1992. "A Model of Random Matching," Post-Print hal-00753230, HAL.
  25. Itzhak Gilboa & Dov Samet, 1991. "Absorbent Stable Sets," Discussion Papers 935, 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. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  28. Russell Cooper & Andrew John, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, Oxford University Press, vol. 103(3), pages 441-463.
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