Metastable Equilibria

We define a refinement of Nash equilibria called metastability. This refinement supposes that the given game might be embedded within any global game that leaves its local best-reply correspondence unaffected. A selected set of equilibria is metastable if it is robust against perturbations of every such global game; viz., every sufficiently small perturbation of the best-reply correspondence of each global game has an equilibrium that projects arbitrarily near the selected set. Metastability satisfies the standard decision-theoretic axioms obtained by Mertens' (1989) refinement (the strongest proposed refinement), and it satisfies the projection property in Mertens' small-worlds axiom: a metastable set of a global game projects to a metastable set of a local game. But the converse is slightly weaker than Mertens' decomposition property: a metastable set of a local game contains a metastable set that is the projection of a metastable set of a global game. This is inevitab...

• Type: Journal
• Year: 2008
• Where: MOR
• Authors: Srihari Govindan, Robert Wilson
• Keywords: Global Game, Metastable Set, MOR 2008, Strongest Proposed Refinement