Equilibrium Selection in Binary Supermodular Games under Perfect Foresight Dynamics

23 Pages Posted: 10 Jun 2009

See all articles by Daisuke Oyama

Daisuke Oyama

University of Tokyo - Faculty of Economics

Satoru Takahashi

Harvard University - Department of Economics

Josef Hofbauer

University of Vienna - Department of Mathematics

Date Written: June 8, 2009

Abstract

This paper studies equilibrium selection in binary supermodular games based on perfect foresight dynamics. We provide complete characterizations of absorbing and globally accessible equilibria and apply them to two subclasses of games. First, for unanimity games, it is shown that our selection criterion is not in agreement with that in terms of Nash products, and an example is presented in which two strict Nash equilibria are simultaneously globally accessible when the friction is sufficiently small. Second, a class of games with invariant diagonal are proposed and shown to generically admit an absorbing and globally accessible equilibrium for small frictions.

Keywords: equilibrium selection, perfect foresight dynamics, supermodular game, strategic complementarity, unanimity game, invariant diagonal game

JEL Classification: C72, C73

Suggested Citation

Oyama, Daisuke and Takahashi, Satoru and Hofbauer, Josef, Equilibrium Selection in Binary Supermodular Games under Perfect Foresight Dynamics (June 8, 2009). Available at SSRN: https://ssrn.com/abstract=1417459 or http://dx.doi.org/10.2139/ssrn.1417459

Daisuke Oyama (Contact Author)

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

Satoru Takahashi

Harvard University - Department of Economics ( email )

Littauer Center
Cambridge, MA 02138
United States

Josef Hofbauer

University of Vienna - Department of Mathematics ( email )

Oskar-Morgenstern-Platz 1
A-1090 Vienna
Austria