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Correlated strategies as Institutions

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Abstract

Two institutions that are often implicit or overlooked in noncooperative games are the assumption of Nash behavior to solve a game, and the ability to correlate strategies. We consider two behavioral paradoxes; one in which maximin behavior rules out all Nash equilibria (‘Chicken’), and another in which minimax supergame behavior leads to an ‘inefficient’ outcome in comparison to the unique stage game equilibrium (asymmetric ‘Deadlock’). Nash outcomes are achieved in both paradoxes by allowing for correlated strategies, even when individual behavior remains minimax or maximin. However, the interpretation of correlation as a public institution differs for each case.

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Authors and Affiliations

  1. Department of Economics, Finance and Legal Studies, University of Alabama, 200 Alston, Box 870224, Tuscaloosa, AL, 35487-0224, USA

    Daniel G. M. Arce

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Arce, D.G. Correlated strategies as Institutions. Theory and Decision 42, 271–285 (1997). https://doi.org/10.1023/A:1004906403823

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