Equilibrium Selection in Global Games with Strategic Complementarities

David M. Frankel, Iowa State University
Stephen Morris, Yale University
Ady Pauzner, Tel Aviv University

Abstract

We study games with strategic complementarities, arbitrary numbers of players and actions, and slightly noisy payoff signals. We prove limit uniqueness: as the signal noise vanishes, the game has a unique strategy profile that survives iterative dominance. This generalizes a result of Carlsson and van Damme (1993) for two player, two action games. The surviving profile, however, may depend on fine details of the structure of the noise. We provide sufficient conditions on payoffs for there to be noise-independent selection.