TY - JOUR
T1 - Equilibrium Selection in Auctions and High Stakes Games
AU - Milgrom, Paul
AU - Mollner, Joshua
N1 - Funding Information:
Paul Milgrom: [email protected] Joshua Mollner: [email protected] For helpful comments, we thank Gabriel Carroll, Ricardo De la O, Piotr Dworczak, Drew Fudenberg, Philippe Jehiel, Peter Klibanoff, Fuhito Kojima, Markus Mobius, Michael Ostrovsky, James Schummer, Erling Skancke, Andrzej Skrzypacz, Joel Sobel, Bruno Strulovici, Péter Vida, Jörgen Weibull, Glen Weyl, Alexander Wolitzky, seminar participants, and anonymous referees. Milgrom thanks the National Science Foundation for support under Grant 1525730. Mollner was a Postdoctoral Researcher at Microsoft Research while part of this research was completed, and he thanks them for their hospitality.
Publisher Copyright:
© 2018 The Econometric Society
PY - 2018/1
Y1 - 2018/1
N2 - 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.
AB - 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.
KW - Equilibrium refinement
KW - generalized second-price auction
KW - menu auction
KW - quasi-perfect equilibrium
KW - second-price common value auction
KW - test-set equilibrium
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U2 - 10.3982/ECTA12536
DO - 10.3982/ECTA12536
M3 - Article
AN - SCOPUS:85041609994
SN - 0012-9682
VL - 86
SP - 219
EP - 261
JO - Econometrica
JF - Econometrica
IS - 1
ER -