English, Article, Journal or magazine article edition: Equilibrium Selection in Static and Dynamic Entry Games John Duffy; Jack Ochs

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Bookmark: http://trove.nla.gov.au/version/68895
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Equilibrium Selection in Static and Dynamic Entry Games
Author
  • John Duffy
  • Jack Ochs
Physical Description
  • preprint
Notes
  • We experimentally examine equilibrium selection concepts in static and dynamic binary choice games of complete information with strategic complementarities known as “entry” games. Examples include speculative attacks, bank runs and refinancing decisions by multiple lenders. We explore behavior when the value of a state variable is known to all players in advance of making their action choices. Such games give rise to multiple equilibria and coordination problems. Our specific aim is to assess the predictive power of two different equilibrium selection principles. In static entry games, we test the theory of global games as an equilibrium selection device. This theory posits that players play games of complete information as if they were playing a related global game of incomplete information. In dynamic entry games, individuals decide not only whether to enter but also when to enter. Once entry occurs it is irreversible. The number of people who have already entered is part of the state description, and individuals can condition their decisions on that information. If the state variable does not indicate that entry is dominated, the efficient subgame perfect equilibrium prediction calls for all players to immediately choose to enter, thereby resolving the coordination problem. This subgame perfect entry threshold in the dynamic game will generically differ from the global game threshold in static versions of the same entry game. Our experimental findings suggest that entry thresholds in both static and dynamic versions of the same entry game are surprisingly similar. The mean entry threshold in the static game lies below the global game equilibrium threshold while the mean entry threshold in the dynamic game lies above the efficient subgame perfect equilibrium threshold. An important implication of this finding is that if one were to observe only the value of the state variable and the number of people who enter by the end of the game one could not determine whether the static or the dynamic game had been played.
  • RePEc:pit:wpaper:376
Language
  • English
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