Long-run equilibria, dominated strategies, and local interactions
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Abstract
The present note revisits a result by Kim and Wong
(2010) showing that any strict Nash equilibrium of a coordination
game can be supported as a long run equilibrium by properly adding
dominated strategies. We show that in the circular city model of
local interactions the selection of 1/2 -dominant strategies remains
when adding strictly dominated strategies if interaction is decentral".
Conversely, if the local interaction structure is central" by
adding properly suited dominated strategies any equilibrium strategy
of the original game can be supported as long run equilibrium.
Classification- JEL: C72, D8
