Large Games with Heterogeneous Players
Preprint
- 31 January 2020
- preprint
- Published by Elsevier BV in SSRN Electronic Journal
Abstract
We study large games played by heterogeneous agents whose payoffs depend on the aggregate action and provide novel equilibrium selection and comparative statics results. We prove the equivalence between the global games selection and potential maximization in games with strategic complementarities, and characterize the selected equilibrium as the solution to maximizing the ex-ante expected payoffs of a player with pessimistic beliefs. To obtain our results we uncover two key properties. First, we show that potential games exhibit quasilinear payoffs, which include as examples Cournot competition, public goods and externalities, search models and coordination games. Second, we show that beliefs in the global game satisfy a generalized Laplacian property, which links average beliefs about the aggregate action to the uniform distribution. Our comparative statics results rely on average rather than pointwise conditions on payoffs and can be used to analyze both parameter changes and the impact of heterogeneity.This publication has 30 references indexed in Scilit:
- Risk and wealth in a model of self-fulfilling currency attacksJournal of Monetary Economics, 2007
- Demand–Deposit Contracts and the Probability of Bank RunsThe Journal of Finance, 2005
- Robust Equilibria of Potential GamesEconometrica, 2001
- The Robustness of Equilibria to Incomplete InformationEconometrica, 1997
- Nash equilibrium with strategic complementaritiesJournal of Mathematical Economics, 1990
- Rationalizability, Learning, and Equilibrium in Games with Strategic ComplementaritiesEconometrica, 1990
- Technology Adoption in the Presence of Network ExternalitiesJournal of Political Economy, 1986
- Standardization, Compatibility, and InnovationThe RAND Journal of Economics, 1985
- Bank Runs, Deposit Insurance, and LiquidityJournal of Political Economy, 1983
- Aggregate Demand Management in Search EquilibriumJournal of Political Economy, 1982