Peer-Confirming Equilibrium

27 Pages Posted: 3 Jan 2017 Last revised: 9 Jun 2017

Elliot Lipnowski

University of Chicago - Department of Economics

Evan D. Sadler

Harvard University

Date Written: June 8, 2017

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, game theory

JEL Classification: D01, D85, C72, D74

Suggested Citation

Lipnowski, Elliot and Sadler, Evan D., Peer-Confirming Equilibrium (June 8, 2017). Available at SSRN: https://ssrn.com/abstract=2892329 or http://dx.doi.org/10.2139/ssrn.2892329

Elliot Lipnowski

University of Chicago - Department of Economics ( email )

1126 E. 59th St
Chicago, IL 60637
United States

Evan D. Sadler (Contact Author)

Harvard University ( email )

1875 Cambridge Street
Cambridge, MA 02138
United States

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