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Monotone methods for equilibrium selection under perfect foresight dynamics

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  • ,

    (Graduate School of Economics, Hitotsubashi University)

  • ,

    (Department of Economics, Princeton University)

  • ,

    (Department of Mathematics, University of Vienna)

Abstract

This paper studies a dynamic adjustment process in a large society of forward-looking agents where payoffs are given by a normal form supermodular game. The stationary states of the dynamics correspond to the Nash equilibria of the stage game. It is shown that if the stage game has a monotone potential maximizer, then the corresponding stationary state is uniquely linearly absorbing and globally accessible for any small degree of friction. A simple example of a unanimity game with three players is provided where there are multiple globally accessible states for a small friction.

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  • , & , & ,, 2008. "Monotone methods for equilibrium selection under perfect foresight dynamics," Theoretical Economics, Econometric Society, vol. 3(2), June.
    • Handle: RePEc:the:publsh:194
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    More about this item

    Keywords

    Equilibrium selection; perfect foresight dynamics; supermodular game; strategic complementarity; stochastic dominance; potential; monotone potential;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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