A NEW THEORY OF EQUILIBRIUM SELECTION FOR GAMES WITH INCOMPLETE INFORMATION

In an earlier paper, the author proposed a new theory of equilibrium selection for games with complete information. In this paper he proposes an extension of this theory to games with incomplete information. A mathematical model is suggested for measuring the strength of the incentives that each type of any player has to use any particular strategy in the case he represents this player in the game. Then, these incentive measures are used for estimating the theoretical probability for any given Nash equilibrium to emerge as the outcome of the game. The solution of the game is defined as the Nash equilibrium with the highest theoretical realization probability when this equilibrium is unique. The problems posed by non-uniqueness are also discussed. (C) 1995 Academic Press, Inc.