P-STABLE EQUILIBRIUM: DEFINITION AND SOME PROPERTIES

Gabriel Desgranges and Sayantan Ghosal

No 270772, Economic Research Papers from University of Warwick - Department of Economics

Abstract: We deÖne a continuous index of strategic stability, pstability, which requires equilibrium to be the unique outcome compatible with common knowledge of rationality and common knowledge of pbeliefs (beliefs that put probability at least p on the equilibrium proÖle). We show that every equilibrium (within a large class) is p-stable for some p < 1 and justify, in smooth settings, the intuition that the slope of the best response map is related to the stability of equilibrium. We show that adding incomplete information on fundamentals could decrease the degree of strategic stability. In two applications to large markets we (i) show that a unique equilibrium globally unstable (under t‚tonnement dynamics) has, nevertheless, a measure of strategic stability, (ii) characterize the conditions under which enhanced equilibrium e¢ ciency results in decreased strategic stability.

Keywords: Financial; Economics (search for similar items in EconPapers)
Pages: 30
Date: 2010-12-17
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://ageconsearch.umn.edu/record/270772/files/twerp_952.pdf (application/pdf)
https://ageconsearch.umn.edu/record/270772/files/twerp_952.pdf?subformat=pdfa (application/pdf)

Related works:
Working Paper: P-Stable Equilibrium: Definition and Some Properties (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ags:uwarer:270772

DOI: 10.22004/ag.econ.270772

Access Statistics for this paper

More papers in Economic Research Papers from University of Warwick - Department of Economics
Bibliographic data for series maintained by AgEcon Search (aesearch@umn.edu).