Efficiency and Stability of Sampling Equilibrium in Public Goods Games
Journal of Public Economic Theory (2018)
21 Pages Posted: 7 Dec 2017 Last revised: 19 Dec 2018
Date Written: December 19, 2018
Most models of social preferences and bounded rationality that are effective in explaining efficiency-increasing departures from equilibrium behavior cannot easily account for similar deviations when they are efficiency-reducing. We show that the notion of sampling equilibrium, subject to a suitable stability refinement, can account for behavior in both efficiency-enhancing and efficiency-reducing conditions. In particular, in public goods games with dominant strategy equilibria, stable sampling equilibrium involves the play of dominated strategies with positive probability both when such behavior increases aggregate payoffs (relative to the standard prediction) and when it reduces aggregate payoffs. While the dominant strategy equilibrium prediction changes abruptly from zero contribution to full contribution as a parameter crosses a threshold, the stable sampling equilibrium remains fully mixed throughout. This is consistent with the available experimental evidence.
Keywords: bounded rationality, public goods; sampling equilibrium; sampling dynamics
JEL Classification: C73, D03, H41
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