A Note on Risk Dominance and Sequential Equilibrium
5 Pages Posted: 16 Jun 2008
Abstract
This note shows that the loss deviations in Selten's (1995) risk dominance measure are the same as the arguments of the probability of a strategy that supports a sequential equilibrium. Risk dominance is used to select among Nash equilibria, while sequential equilibrium, which is stronger than the Nash solution, can be viewed as reducing the set of equilibria. Despite their similarity, examples are given to show they can give materially different predictions. We discuss why the differences arise.
Keywords: Noncooperative Games, Risk Dominance
JEL Classification: C72, C79
Suggested Citation: Suggested Citation
Brown, Murray and Chiang, Shin-Hwan, A Note on Risk Dominance and Sequential Equilibrium. Available at SSRN: https://ssrn.com/abstract=1146703 or http://dx.doi.org/10.2139/ssrn.1146703
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