Equilibrium Refinements

Ana Espinola-Arredondo and Felix Munoz-Garcia

Chapter Chapter 11 in Game Theory, 2023, pp 359-378 from Springer

Abstract: Abstract Chapter 10 highlights that signaling games and the PBE solution concept are an excellent tool to explain a wide array of economic situations —from the role of education in the labor market, to pricing strategies seeking to deter firms’ entry in an industry, to car warranties by new automakers operating in a market. However, we found that this class of games may yield a large number of PBEs and, more importantly, some of these equilibria can only be sustained if players hold insensible off-the-equilibrium beliefsOff-the-equilibrium beliefs. As an example, recall our discussion in subsection 10.7.3 where, in the context of the labor-market signaling game, we found th at a PBE where no worker type acquires education can be supported if, upon observing the surprising event of an educated worker, the firm believes she must be of low productivity.

Date: 2023
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DOI: 10.1007/978-3-031-37574-3_11

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