Abstract
We introduce the test-set equilibrium refinement of Nash equilibrium to formalize the idea that players contemplate only deviations from equilibrium play in which a single competitor plays a non-equilibrium best response. We then apply this refinement to three well-known auction games, comparing our findings to similar ones previously obtained by specialized equilibrium selections. We also introduce a theory of high stakes versions of games, in which strategies are first proposed and then subjected to a potentially costly review-and-revise process. We demonstrate a sense in which the test-set equilibria emerge from such processes when the cost of revision is small.
Original language | English (US) |
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Pages (from-to) | 219-261 |
Number of pages | 43 |
Journal | Econometrica |
Volume | 86 |
Issue number | 1 |
DOIs | |
State | Published - Jan 2018 |
Keywords
- Equilibrium refinement
- generalized second-price auction
- menu auction
- quasi-perfect equilibrium
- second-price common value auction
- test-set equilibrium
ASJC Scopus subject areas
- Economics and Econometrics