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No 927:
Preopening and equilibrium selection

Stefano Lovo () and Ricardo Calcagno ()

Abstract: In this paper, the authors introduce a form of pre-play communication that we call "preopening". During the preopening, players announce their tentative actions to be played in the underlying game. Announcements are made using a posting system which is subject to stochastic failures. Posted actions are publicly observable and players payo¤s only depend on the opening outcome, i.e. the action pro…le that is posted at the end of the preopening phase. We show that when the posting failures hit players idiosyncratically all equilibria of the preopening game lead to the same opening outcome that corresponds to the most "sensible" pure Nash equilibrium of the underlying game. By contrast preopening does not operate an equilibrium selection when posting failure hits players simultaneously.

Keywords: Preopening; equilibrium selection; bargaining; cheap talk; (follow links to similar papers)

JEL-Codes: C72; C73; C78; G10; (follow links to similar papers)

51 pages, February 16, 2010

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