On the Relationship Between Risk-Dominance and Stochastic Stability

Toshimasa Maruta

No 1122, Discussion Papers from Northwestern University, Center for Mathematical Studies in Economics and Management Science

Abstract: In a 2 x2 symmetric game with two symmetric equilibria in pure strategies, one risk-dominates another if and only if the equilibrium strategy is a unique best response to any mixture that gives it at least a probability of one half. In a n x n symmetric game, we call a strategy globally risk-dominant if it is a unique best response to any mixture that gives it at least a probability of one half. We show that if a finite coordination game has a globally risk-dominant equilibrium then this is the one that is selected by the stochastic equilibrium selection processes proposed by Young and by Kandori, Mailath, and Rob.

Date: 1995-03
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Journal Article: On the Relationship between Risk-Dominance and Stochastic Stability (1997)
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