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Strategic uncertainty and equilibrium selection in discontinuous games

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Article
Author/s: 
Philippe Bich
Journal of Economic Theory
Issue number: 
Volume 183, September 2019
Publisher: 
Elsevier
Year: 
2019
Journal pages: 
786-822
We introduce the new concept of prudent equilibrium to model strategic uncertainty, and prove it exists in large classes of discontinuous games. When the game is better-reply secure, we show that prudent equilibrium refines Nash equilibrium. In contrast with the current literature, we don't use probabilities to model players' strategies and beliefs about other players' strategies. We provide examples (first-price auctions, location game, Nash demand game, etc.) where prudent equilibrium concept removes most non-intuitive solutions of the game.
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