P-stable equilibrium : definition and some properties
Desgranges, Gabriel and Ghosal, Sayantan (2010) P-stable equilibrium : definition and some properties. Working Paper. Coventry: University of Warwick. Dept. of Economics. Warwick economics research paper series (TWERPS), Vol.2010 (No.952).
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We define a continuous index of strategic stability, p-stability, which requires equilibrium to be the unique outcome compatible with common knowledge of rationality and common knowledge of p-beliefs (beliefs that put probability at least p on the equilibrium profile). We show that every
equilibrium (within a large class) is p-stable for some p < 1 and justify, in smooth settings, the intuition that the slope of the best response map is related to the stability of equilibrium. We show that adding incomplete information on fundamentals could decrease the degree of strategic
stability. In two applications to large markets we (i) show that a unique equilibrium globally unstable (under tâtonnement dynamics) has, nevertheless, a measure of strategic stability, (ii) characterize the conditions
under which enhanced equilibrium efficiency results in decreased strategic stability.
|Item Type:||Working or Discussion Paper (Working Paper)|
|Subjects:||H Social Sciences > HB Economic Theory
Q Science > QA Mathematics
|Divisions:||Faculty of Social Sciences > Economics|
|Library of Congress Subject Headings (LCSH):||Equilibrium (Economics), Stability|
|Series Name:||Warwick economics research paper series (TWERPS)|
|Publisher:||University of Warwick. Dept. of Economics|
|Place of Publication:||Coventry|
|Status:||Not Peer Reviewed|
|Access rights to Published version:||Open Access|
 Artstein Z. (1979), "A note on Fatou's lemma in several dimensions", Journal of Mathematical Economics, 6(3), 277-282.
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