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Equilibrium Refinements

In: Game Theory

Author

Listed:
  • Ana Espinola-Arredondo

    (Washington State University)

  • Felix Muñoz-Garcia

    (Washington State University)

Abstract

Chapter 10 highlights that signaling games and the PBE solution concept are an excellent tool to explain a wide array of economic situations —from the role of education in the labor market, to pricing strategies seeking to deter firms’ entry in an industry, to car warranties by new automakers operating in a market. However, we found that this class of games may yield a large number of PBEs and, more importantly, some of these equilibria can only be sustained if players hold insensible off-the-equilibrium beliefsOff-the-equilibrium beliefs. As an example, recall our discussion in subsection 10.7.3 where, in the context of the labor-market signaling game, we found th at a PBE where no worker type acquires education can be supported if, upon observing the surprising event of an educated worker, the firm believes she must be of low productivity.

Suggested Citation

  • Ana Espinola-Arredondo & Felix Muñoz-Garcia, 2023. "Equilibrium Refinements," Springer Books, in: Game Theory, chapter 0, pages 359-378, Springer.
    • Handle: RePEc:spr:sprchp:978-3-031-37574-3_11
    DOI: 10.1007/978-3-031-37574-3_11
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