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Monotone Methods for Equilibrium Selection under Perfect Foresight Dynamics

Oyama, Daisuke and Takahashi, Satoru and Hofbauer, Josef (2003): Monotone Methods for Equilibrium Selection under Perfect Foresight Dynamics.

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Abstract

This paper studies a dynamic adjustment process in a large society of forward-looking agents where payoffs are given by a normal form supermodular game. The stationary states of the dynamics correspond to the Nash equilibria of the stage game. It is shown that if the stage game has a monotone potential maximizer, then the corresponding stationary state is uniquely linearly absorbing and globally accessible for any small degree of friction. Among binary supermodular games, a simple example of a unanimity game with three players is provided where there are multiple globally accessible states for a small friction.

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