Strategic uncertainty and equilibrium selection in discontinuous games

Journal article: 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.

Author(s)

Philippe Bich

Journal
  • Journal of Economic Theory
Date of publication
  • 2019
Keywords JEL
C02 C62 C72 L13
Keywords
  • Prudent equilibrium
  • Nash equilibrium
  • Refinement
  • Strategic uncertainty
  • Better-reply secure
  • Discontinuous games
Pages
  • 786-822
Version
  • 1
Volume
  • 183