Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93541 
Year of Publication: 
2012
Series/Report no.: 
UPSE Discussion Paper No. 2012-16
Publisher: 
University of the Philippines, School of Economics (UPSE), Quezon City
Abstract: 
We propose an equilibrium concept, the Robust Nash equilibrium (RNE), that combines the best-reply rationality and the first mover invariance condition. The single-stage 2x2 symmetric information game G is transformed into sequential two-stage games with two sub-trees: STA has the row player starting and STB has the column player starting. A profile in G is robust if it is the strict SPNE of the two branches; it is ephemeral if it is not the SPNE of any branch. We show that every strict dominant strategy equilibrium of G is robust but not every strict Nash equilibrium of G is. We show further that every robust profile of G is always a strict Nash equilibrium of G. A Robust Nash equilibrium (RNE) of G is any robust profile of G. The RNE of G is unique. We show in particular that the payoff dominant strict Nash equilibrium of a coordination game G is RNE while the strictly payoff-dominated Nash equilibrium of G is ephemeral. The original Harsanyi-Selten preference for payoff dominance over risk dominance is supported by robustness without invoking collective rationality.
JEL: 
C02
C72
Document Type: 
Working Paper

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