Graduate School of Economics, Hitotsubashi University
Department of Economics, Princeton University
Department of Mathematics, University of Vienna
This paper studies a dynamic adjustment process in a large society of forward-looking agents where payoffs are given by a normal form supermodular game. The stationary states of the dynamics correspond to the Nash equilibria of the stage game. It is shown that if the stage game has a monotone potential maximizer, then the corresponding stationary state is uniquely linearly absorbing and globally accessible for any small degree of friction. A simple example of a unanimity game with three players is provided where there are multiple globally accessible states for a small friction. Journal of Economic Literature Classification Numbers: C72, C73.
Key Words: equilibrium selection; perfect foresight dynamics; supermodular game; strategic complementarity; stochastic dominance; potential; monotone potential.
Theoretical Economics 3 (2008), 155-192. PDF file
First draft: May 2, 2003; this version: April 2, 2008. PDF file
Working paper version: January 27, 2006. PDF file