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Communication and Equilibrium in Discontinuous Games of Incomplete Information
Author(s) -
Jackson Matthew O.,
Simon Leo K.,
Swinkels Jeroen M.,
Zame William R.
Publication year - 2002
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/1468-0262.00351
Subject(s) - mathematical economics , complete information , economics , microeconomics
This paper offers a new approach to the study of economic problems usually modeled as games of incomplete information with discontinuous payoffs. Typically, the discontinuities arise from indeterminacies (ties) in the underlying problem. The point of view taken here is that the tie–breaking rules that resolve these indeterminacies should be viewed as part of the solution rather than part of the description of the model. A solution is therefore a tie–breaking rule together with strategies satisfying the usual best–response criterion. When information is incomplete, solutions need not exist; that is, there may be no tie–breaking rule that is compatible with the existence of strategy profiles satisfying the usual best–response criteria. It is shown that the introduction of incentive compatible communication (cheap talk) restores existence.