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Communication and Equilibrium in Discontinuous Games of Incomplete Information

Matthew O. Jackson, Leo K. Simon, Jeroen M. Swinkels and William R. Zame
Econometrica
Vol. 70, No. 5 (Sep., 2002), pp. 1711-1740
Published by: Econometric Society
Stable URL: http://www.jstor.org/stable/3082018
Page Count: 30
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Communication and Equilibrium in Discontinuous Games of Incomplete Information
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Abstract

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 bestresponse criteria. It is shown that the introduction of incentive compatible communication (cheap talk) restores existence.

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