Peer-Confirming Equilibrium
Econometrica · 2019 · Volume 87 · Issue 2
Abstract
We can often predict the behavior of those closest to us more accurately than that of complete strangers, yet we routinely engage in strategic situations with both: our social network impacts our strategic knowledge. Peer-confirming equilibrium describes the behavioral consequences of this intuition in a noncooperative game. We augment a game with a network to represent strategic information: if two players are linked in the network, they have correct conjectures about each others' strategies. In peer-confirming equilibrium, there is common belief that players (i) behave rationally and (ii) correctly anticipate neighbors' play. In simultaneous-move games, adding links to the network always restricts the set of outcomes. In dynamic games, the outcome set may vary non-monotonically with the network because the actions of well-connected players help poorly-connected players coordinate. This solution concept provides a useful language for studying public good provision, highlights a new channel through which central individuals facilitate coordination, and delineates possible sources of miscoordination in protests and coups.
Keywords
Networks, strategic uncertainty, conjectural equilibrium, forward induction
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