Behavioral Economics by Cartwright Edward

Author:Cartwright, Edward
Language: eng
Format: epub, pdf
ISBN: 9781317815051
Publisher: Taylor and Francis
Published: 2014-04-29T04:00:00+00:00

Equilibrium refinements and selection

If there are multiple Nash equilibria it seems natural to ask if one equilibrium seems more likely to be observed than others. This has led to various suggestions of how to refine and select equilibria.

A Nash equilibrium is refined by adding an extra condition that must be satisfied. For example, a sub- game perfect Nash equilibrium is required to be a Nash equilibrium of every possible sub- game of the original game. A Pareto- dominant Nash equilibrium is required to give higher payoffs to everyone than any other Nash equilibrium. Refining the set of Nash equilibria can be done using ideas from behavioral economics. The problem is that there may be multiple or no equilibria that satisfy the refinement. So, the original problem of saying which equilibrium will be observed need not be resolved.

Equilibrium selection tackles the problem of multiple equilibria head-on by providing an algorithm to select a unique equilibrium for a general class of games. We shall see that quantal response equilibrium can be applied to do this. Clearly this approach provides a specific prediction of what people will do. The problem is that the behavioral justification for the algorithm may have to give way to the analytical need to pick one equilibrium. Put another way, it may be natural to think of multiple or no equilibria as possible outcomes of the game, and equilibrium selection does not allow that.

Download

Copyright Disclaimer:
This site does not store any files on its server. We only index and link to content provided by other sites. Please contact the content providers to delete copyright contents if any and email us, we'll remove relevant links or contents immediately.