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Communication and equilibrium in discontinuous games of incomplete information

Jackson, Matthew O. and Simon, Leo K. and Swinkels, Jeroen M. and Zame, William R. (2002) Communication and equilibrium in discontinuous games of incomplete information. Econometrica, 70 (5). pp. 1711-1740. ISSN 0012-9682. doi:10.1111/1468-0262.00351.

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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.

Item Type:Article
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Jackson, Matthew O.0000-0001-9846-4249
Additional Information:© 2002 The Econometric Society. Manuscript received June, 2001; final revision received January, 2002. This paper merges “Cheap Talk and Discontinuous Games of Incomplete Information,” by Simon and Zame, and “Existence of Equilibrium in Auctions and Discontinuous Bayesian Games: Endogenous and Incentive Compatible Sharing Rules,” by Jackson and Swinkels. We are grateful for comments from Kim Border, Martin Cripps, Bryan Ellickson, Preston McAfee, Roger Myerson, John Nachbar, Phil Reny, John Riley, Larry Samuelson, Mark Satterthwaite, Tianxiang Ye, seminar audiences at Minnesota, Northwestern, Rochester, Stanford, the Stony Brook Game Theory Conference, Texas, UCLA, and UCSD. We especially thank a co-editor and three referees for helpful comments. Jackson is grateful for financial support from the National Science Foundation. Zame is grateful for the hospitality of the UC Berkeley Economics Department in Winter 1996, when much of this work was done, and for financial support from the Ford Foundation, from the National Science Foundation, and from the UCLA Academic Senate Committee on Research. Swinkels thanks the Boeing Center for Technology, Information, and Manufacturing for financial support.
Subject Keywords:Auctions, cheap talk, discontinuous games, sharing rules, tie-breaking rules
Issue or Number:5
Record Number:CaltechAUTHORS:JACe02
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Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:4812
Deposited By: Lindsay Cleary
Deposited On:08 Sep 2006
Last Modified:08 Nov 2021 20:20

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