Sandomirskaia, Marina (2017): Nash2 equilibrium: selective farsightedness under uncertain response.

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Abstract
This paper provides an extended analysis of an equilibrium concept for noncooperative games with boundedly rational players: a Nash2 equilibrium. Players think one step ahead and account all profitable responses of playerspecific subsets of opponents because of both the cognitive limitations to predict everyone's reaction and the inability to make more deep and certain prediction even about a narrow sample of agents. They cautiously reject improvements that might lead to poorest profit after some possible reasonable response. For $n$person games we introduce a notion of reflection network consisting of direct competitors to express the idea of selective farsightedness. For almost every 2person game with a complete reflection network, we prove the existence of Nash2 equilibrium. Nash2 equilibrium sets in the models of price and quantity competition, and in Tullock's rentseeking model with 2 players are obtained. It is shown that such a farsighted behavior may provide a strategic support for tacit collusion.
Item Type:  MPRA Paper 

Original Title:  Nash2 equilibrium: selective farsightedness under uncertain response 
Language:  English 
Keywords:  Iterated thinking; Improving deviation; Direct competitor; Heterogeneous farsightedness; Tacit collusion 
Subjects:  C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory > C72  Noncooperative Games D  Microeconomics > D0  General > D03  Behavioral Microeconomics: Underlying Principles D  Microeconomics > D4  Market Structure, Pricing, and Design > D43  Oligopoly and Other Forms of Market Imperfection D  Microeconomics > D7  Analysis of Collective DecisionMaking > D70  General L  Industrial Organization > L1  Market Structure, Firm Strategy, and Market Performance > L13  Oligopoly and Other Imperfect Markets 
Item ID:  83152 
Depositing User:  Dr. Marina Sandomirskaia 
Date Deposited:  10 Dec 2017 09:06 
Last Modified:  10 Dec 2017 09:06 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/83152 