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Strategic uncertainty and equilibrium selection in discontinuous games

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  • Bich, Philippe

Abstract

We introduce the new concept of prudent equilibrium to model strategic uncertainty, and prove it exists in large classes of discontinuous games. When the game is better-reply secure, we show that prudent equilibrium refines Nash equilibrium. In contrast with the current literature, we don't use probabilities to model players' strategies and beliefs about other players' strategies. We provide examples (first-price auctions, location game, Nash demand game, etc.) where prudent equilibrium concept removes most non-intuitive solutions of the game.

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  • Bich, Philippe, 2019. "Strategic uncertainty and equilibrium selection in discontinuous games," Journal of Economic Theory, Elsevier, vol. 183(C), pages 786-822.
    • Handle: RePEc:eee:jetheo:v:183:y:2019:i:c:p:786-822
    DOI: 10.1016/j.jet.2019.08.001
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    1. Frédéric Koessler & Marieke Pahlke, 2023. "Feedback Design in Strategic-Form Games with Ambiguity Averse Players," Working Papers halshs-04039083, HAL.

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    More about this item

    Keywords

    Prudent equilibrium; Nash equilibrium; Refinement; Strategic uncertainty; Better-reply secure; Discontinuous games;
    All these keywords.

    JEL classification:

    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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