Peer-Confirming Equilibrium

31 Pages Posted: 3 Jan 2017 Last revised: 18 Dec 2018

See all articles by Elliot Lipnowski

Elliot Lipnowski

Columbia University

Evan Sadler

Columbia University, Graduate School of Arts and Sciences, Department of Economics

Date Written: December 17, 2018

Abstract

We can often predict the behavior of those closest to us more accurately than that of complete strangers, yet we routinely engage in strategic situations with both: our social network impacts our strategic knowledge. Peer-confirming equilibrium describes the behavioral consequences of this intuition in a noncooperative game. We augment a game with a network to represent strategic information: if two players are linked in the network, they have correct conjectures about each others' strategies. In peer-confirming equilibrium, there is common belief that players (i) behave rationally and (ii) correctly anticipate neighbors' play. In simultaneous-move games, adding links to the network always restricts the set of outcomes. In dynamic games, the outcome set may vary non-monotonically with the network because the actions of well-connected players help poorly-connected players coordinate. This solution concept provides a useful language for studying public good provision, highlights a new channel through which central individuals facilitate coordination, and delineates possible sources of miscoordination in protests and coups.

Keywords: networks, strategic uncertainty, conjectural equilibrium, forward induction

JEL Classification: D01, D85, C72, D74

Suggested Citation

Lipnowski, Elliot and Sadler, Evan, Peer-Confirming Equilibrium (December 17, 2018). Available at SSRN: https://ssrn.com/abstract=2892329 or http://dx.doi.org/10.2139/ssrn.2892329

Elliot Lipnowski

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

Evan Sadler (Contact Author)

Columbia University, Graduate School of Arts and Sciences, Department of Economics ( email )

420 W. 118th Street
New York, NY 10027
United States

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