The Robust Nash Equilibrium and Equilibrium Selection in 2x2 Coordination Games

Raul Fabella and Vigile Marie Fabella
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Vigile Marie Fabella: Universitët Konstanz, Germany

No 201216, UP School of Economics Discussion Papers from University of the Philippines School of Economics

Abstract: We propose an equilibrium concept, the Robust Nash equilibrium (RNE), that combines the best-reply rationality and the "first mover invariance" condition. The single-stage 2x2 symmetric information game G is transformed into sequential two-stage games with two sub-trees: STA has the row player starting and STB has the column player starting. A profile in G is robust if it is the strict SPNE of the two branches; it is ephemeral if it is not the SPNE of any branch. We show that every strict dominant strategy equilibrium of G is robust but not every strict Nash equilibrium of G is. We show further that every robust profile of G is always a strict Nash equilibrium of G. A Robust Nash equilibrium (RNE) of G is any robust profile of G. The RNE of G is unique. We show in particular that the payoff dominant strict Nash equilibrium of a coordination game G is RNE while the strictly payoff-dominated Nash equilibrium of G is ephemeral. The original Harsanyi-Selten preference for payoff dominance over risk dominance is supported by robustness without invoking collective rationality.

Keywords: Nash; Equilibrium (search for similar items in EconPapers)
JEL-codes: C02 C72 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2012-10
New Economics Papers: this item is included in nep-gth, nep-hpe and nep-mic
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Published as UPSE Discussion Paper No. 2012-16, October 2012

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Persistent link: https://EconPapers.repec.org/RePEc:phs:dpaper:201216

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