Equilibrium Selection in Auctions and High Stakes Games

Paul Milgrom, Joshua Mollner

Research output: Contribution to journalArticlepeer-review

9 Scopus citations

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 languageEnglish (US)
Pages (from-to)219-261
Number of pages43
JournalEconometrica
Volume86
Issue number1
DOIs
StatePublished - 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

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