Equilibrium Selection with Payoff-Dependent Mistakes
Kang-Oh Yi ()
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Kang-Oh Yi: Department of Economics, Sogang University, Seoul
No 1115, Working Papers from Research Institute for Market Economy, Sogang University
This paper studies equilibrium selection via stochastic dynamics in the style of Young (Econometrica 61, 1993, 57-84), when the mistake probabilities are allowed to depend on their expected payoffs. Although any strict equilibrium can be selected with properly constructed state-dependent mistakes (Bergin and Lipman, Econometrica, 64, 1996, 943-956), reasonable assumptions on state dependence could produce a consistent equilibrium selection. The main analysis shows how payoff dependency and payoffs interact to determine a long-run equilibrium and characterizes the selection relating to the traditional notions of risk dominance, payoff dominance, and maxmin in 2x2 games
Keywords: Equilibrium selection; stochastic stability; coordination game; payoff dependent mistake (search for similar items in EconPapers)
JEL-codes: C70 C72 D70 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-gth, nep-mic and nep-ore
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Persistent link: https://EconPapers.repec.org/RePEc:sgo:wpaper:1115
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