On Sustainable Equilibria

TL;DR

This paper proves that in finite games, sustainable equilibria are characterized by an index of +1, extending previous results and providing an axiomatic framework linking sustainability to Nash components with positive index.

Contribution

It proves the Hofbauer-Myerson conjecture for all finite games and extends the concept of sustainability with an axiomatic approach.

Findings

Sustainable equilibria have index +1 in generic finite games.

An equilibrium is sustainable iff it can be made unique by adding inferior strategies.

Only Nash components with positive index can be sustainable.

Abstract

Following the ideas laid out in Myerson (1996), Hofbauer (2000) defined a Nash equilibrium of a finite game as sustainable if it can be made the unique Nash equilibrium of a game obtained by deleting/adding a subset of the strategies that are inferior replies to it. This paper proves two results about sustainable equilibria. The first concerns the Hofbauer-Myerson conjecture about the relationship between the sustainability of an equilibrium and its index: for a generic class of games, an equilibrium is sustainable iff its index is $+1$. Von Schemde and von Stengel (2008) proved this conjecture for bimatrix games; we show that the conjecture is true for all finite games. More precisely, we prove that an isolated equilibrium has index +1 if and only if it can be made unique in a larger game obtained by adding finitely many strategies that are inferior replies to that equilibrium. Our second result gives an axiomatic extension of sustainability to all games and shows that only the Nash components with positive index can be sustainable.