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(DP 2012-16) The Robust Nash Equilibrium and Equilibrium Selection in 2x2 Coordination Games
UPSE Discussion Papers
View Archive Info| Field | Value | |
| Title |
(DP 2012-16) The Robust Nash Equilibrium and Equilibrium Selection in 2x2 Coordination Games
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| Creator |
Fabella, Raul V.
Fabella, Vigile Marie B. |
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| Subject |
Nash Equilibrium
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| Description |
We propose an equilibrium concept, the Robust Nash equilibrium (RNE), that combines the best-reply rationality and the "first mover invariance" condition. The single-stage 2x2 symmetric information game G is transformed into sequential two-stage games with two sub-trees: STA has the row player starting and STB has the column player starting. A profile in G is robust if it is the strict SPNE of the two branches; it is ephemeral if it is not the SPNE of any branch. We show that every strict dominant strategy equilibrium of G is robust but not every strict Nash equilibrium of G is. We show further that every robust profile of G is always a strict Nash equilibrium of G. A Robust Nash equilibrium (RNE) of G is any robust profile of G. The RNE of G is unique. We show in particular that the payoff dominant strict Nash equilibrium of a coordination game G is RNE while the strictly payoff-dominated Nash equilibrium of G is ephemeral. The original Harsanyi-Selten preference for payoff dominance over risk dominance is supported by robustness without invoking collective rationality.JEL Classification:C02, C72.
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| Publisher |
UPSE Discussion Papers
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| Contributor |
—
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| Date |
2012-11-05
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| Type |
info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion Peer-reviewed Article |
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| Format |
application/pdf
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| Identifier |
http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/699
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| Source |
UPSE Discussion Papers; 2012
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| Language |
eng
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| Relation |
http://www.econ.upd.edu.ph/dp/index.php/dp/article/view/699/168
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