Approximation of Nash equilibria in Bayesian games

Olivier Armantier, Jean-Pierre Florens and Jean-Francois Richard
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Olivier Armantier: Federal Reserve Bank of New York; University of Montreal; CIRANO and CIREQ, Montreal, Canada, Postal: Federal Reserve Bank of New York; University of Montreal; CIRANO and CIREQ, Montreal, Canada
Jean-Pierre Florens: Toulouse School of Economics, France, Postal: Toulouse School of Economics, France
Jean-Francois Richard: Department of Economics, University of Pittsburgh, Pennsylvania, USA, Postal: Department of Economics, University of Pittsburgh, Pennsylvania, USA

Journal of Applied Econometrics, 2008, vol. 23, issue 7, pages 965-981

Abstract: We define a new concept of constrained strategic equilibrium (CSE) for Bayesian games. We show that a sequence of CSEs approximates an equilibrium under standard conditions. We also provide an algorithm to implement the CSE approximation method numerically in a broad class of Bayesian games, including games without analytically tractable solutions. Finally, we illustrate the flexibility of the CSE approximation with a series of auction examples, including a complex multi-unit auction. Copyright © 2008 John Wiley & Sons, Ltd.

Date: 2008
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