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Equilibrium as compatibility of plans

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  • Marek Hudik

    (University of Economics, Prague)

Abstract

This paper uses a game-theoretic framework to formalize the Hayekian notion of equilibrium as the compatibility of plans. To do so, it imposes more structure on the conventional model of strategic games. For each player, it introduces goals, goal-oriented strategies, and the goals’ probabilities of success, from which players’ payoffs are derived. The differences between the compatibility of plans and Nash equilibrium are identified and discussed. Furthermore, it is shown that the notion of compatibility of plans, in general, differs from the notion of Pareto efficiency. Since the compatibility of plans across all players can rarely be achieved in reality, a measurement is introduced to determine various degrees of plan compatibility. Several possible extensions and applications of the model are discussed.

Suggested Citation

  • Marek Hudik, 2020. "Equilibrium as compatibility of plans," Theory and Decision, Springer, vol. 89(3), pages 349-368, October.
    • Handle: RePEc:kap:theord:v:89:y:2020:i:3:d:10.1007_s11238-020-09753-5
    DOI: 10.1007/s11238-020-09753-5
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    1. Hudik, Marek, 2021. "Push factors of endogenous institutional change," Journal of Economic Behavior & Organization, Elsevier, vol. 189(C), pages 504-514.

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