FAST EQUILIBRIUM SELECTION BY RATIONAL PLAYERS LIVING IN A CHANGING WORLD
Article Abstract:
We study a coordination game with randomly changing payoffs and small frictions in changing actions. Using only backwards induction, we find that players must coordinate on the risk-dominant equilibrium. More precisely, a continuum of fully rational players are randomly matched to play a symmetric 2 x 2 game. The payoff matrix changes according to a random walk. Players observe these payoffs and the population distribution of actions as they evolve. The game has frictions: opportunities to change strategies arrive from independent random processes, so that the players are locked into their actions for some time. As the frictions disappear, each player ignores what the others are doing and switches at her first opportunity to the risk-dominant action. History dependence emerges in some cases when frictions remain positive. KEYWORDS: Equilibrium selection, risk-dominance, dynamic games, payoff shocks.
Publication Name: Econometrica
Subject: Mathematics
ISSN: 0012-9682
Year: 2001
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A FOLK THEOREM FOR ASYNCHRONOUSLY REPEATED GAMES
Article Abstract:
We prove a Folk Theorem for asynchronously repeated games in which the set of players who can move in period t, denoted by [I.sub.t], is a random variable whose distribution is a function of the past action choices of the players and the past realizations of [I.sub.[Tau]]'s, [Tau] = 1, 2, ..., t - 1. We impose a condition, the finite periods of inaction (FPI) condition, which requires that the number of periods in which every player has at least one opportunity to move is bounded. Given the FPI condition together with the standard nonequivalent utilities (NEU) condition, we show that every feasible and strictly individually rational payoff vector can be supported as a subgame perfect equilibrium outcome of an asynchronously repeated game. KEYWORDS: Asynchronously repeated games, Folk Theorem.
Publication Name: Econometrica
Subject: Mathematics
ISSN: 0012-9682
Year: 2001
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