Equilibrium Selection with Payoff-Dependent Mistakes

Kang-Oh Yi ()
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Kang-Oh Yi: Department of Economics, Sogang University, Seoul

No 1115, Working Papers from Nam Duck-Woo Economic Research Institute, Sogang University (Former Research Institute for Market Economy)

Abstract: This paper studies equilibrium selection via stochastic dynamics in the style of Young (Econometrica 61, 1993, 57-84), when the mistake probabilities are allowed to depend on their expected payoffs. Although any strict equilibrium can be selected with properly constructed state-dependent mistakes (Bergin and Lipman, Econometrica, 64, 1996, 943-956), reasonable assumptions on state dependence could produce a consistent equilibrium selection. The main analysis shows how payoff dependency and payoffs interact to determine a long-run equilibrium and characterizes the selection relating to the traditional notions of risk dominance, payoff dominance, and maxmin in 2x2 games

Keywords: Equilibrium selection; stochastic stability; coordination game; payoff dependent mistake (search for similar items in EconPapers)
JEL-codes: C70 C72 D70 (search for similar items in EconPapers)
Pages: 22 pages
Date: 2011
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:1115

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