Ozdogan, Ayca and Saglam, Ismail (2020): Correlated Equilibrium Under Costly Disobedience.

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Abstract
In this paper, we extend Aumann's (1974) wellknown solution of correlated equilibrium to allow for a cost of disobedience for each player. Calling the new solution costly correlated equilibrium (CCE), we derive the necessary and sufficient conditions under which the set of CCE strictly expands when the players' cost of disobedience is increased by the mediator in any finite normalform game. These conditions imply that for any game that has a Nash equilibrium (NE) that is unpure, the set of CCE strictly expands with the addition of even arbitrarily small cost of disobedience, whereas for games that have a unique NE in pure strategies, the set of CCE stays the same unless the cost gets sufficiently high. We also study the welfare implications and changes in the value of mediation with exogenous cost changes. We find that strictly better social outcomes can be attained and the value of mediation cannot decrease with an increase in the cost level. We also illustrate how our model can be integrated with a costselection game where players noncooperatively choose their costs of disobedience before mediation occurs. We show that there exist costselection games in which setting the cost of disobedience at zero is a strictly dominated strategy for each player as well as games this strategy becomes weakly dominant for everyone.
Item Type:  MPRA Paper 

Original Title:  Correlated Equilibrium Under Costly Disobedience 
English Title:  Correlated Equilibrium Under Costly Disobedience 
Language:  English 
Keywords:  Correlated equilibrium; cost of disobedience. 
Subjects:  C  Mathematical and Quantitative Methods > C7  Game Theory and Bargaining Theory > C72  Noncooperative Games 
Item ID:  99370 
Depositing User:  Ismail Saglam 
Date Deposited:  04 Apr 2020 11:24 
Last Modified:  04 Apr 2020 11:24 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/99370 