Correlated equilibrium under costly disobedience

Ayca Ozdogan and Ismail Saglam

Mathematical Social Sciences, 2021, vol. 114, issue C, 98-104

Abstract: We extend Aumann’s (1974) model of correlated equilibrium by requiring each player to bear an exogenously given cost if s/he disobeys the recommendation of the mediator. Calling the modified solution the costly correlated equilibrium (costly-CE), we show that in any finite normal-form game that has an unpure Nash equilibrium, the set of costly-CE strictly expands even with an arbitrarily small increase in the disobedience cost provided that the game is non-trivial and there is room for expansion. We also study the effects of the disobedience cost on the total welfare of players and the value of mediation.

Keywords: Correlated equilibrium; Disobedience cost (search for similar items in EconPapers)
Date: 2021
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Working Paper: Correlated Equilibrium Under Costly Disobedience (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:matsoc:v:114:y:2021:i:c:p:98-104

DOI: 10.1016/j.mathsocsci.2021.08.003

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