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The Robust Nash Equilibrium and Equilibrium Selection in 2x2 Coordination Games

  • Raul V. Fabella

    (University of the Philippines School of Economics)

  • Vigile Marie B. Fabella

    (Universit√ęt Konstanz, Germany)

We propose an equilibrium concept, the Robust Nash equilibrium (RNE), that combines the best-reply rationality and the "first mover invariance" condition. The single-stage 2x2 symmetric information game G is transformed into sequential two-stage games with two sub-trees: STA has the row player starting and STB has the column player starting. A profile in G is robust if it is the strict SPNE of the two branches; it is ephemeral if it is not the SPNE of any branch. We show that every strict dominant strategy equilibrium of G is robust but not every strict Nash equilibrium of G is. We show further that every robust profile of G is always a strict Nash equilibrium of G. A Robust Nash equilibrium (RNE) of G is any robust profile of G. The RNE of G is unique. We show in particular that the payoff dominant strict Nash equilibrium of a coordination game G is RNE while the strictly payoff-dominated Nash equilibrium of G is ephemeral. The original Harsanyi-Selten preference for payoff dominance over risk dominance is supported by robustness without invoking collective rationality.

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File URL: http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/699
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Paper provided by University of the Philippines School of Economics in its series UP School of Economics Discussion Papers with number 201216.

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Length: 14 pages
Date of creation: Oct 2012
Date of revision:
Publication status: Published as UPSE Discussion Paper No. 2012-16, October 2012
Handle: RePEc:phs:dpaper:201216
Contact details of provider: Postal: Diliman, Quezon City 1101
Phone: 927-9686
Web page: http://www.econ.upd.edu.ph/
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