New study reveals key to strategic decision-making in competitive games.
Equilibrium selection in games can be understood by modeling it as a dynamic random matching game with rational players making short-term commitments. The stationary states of this model correspond to Nash outcomes in the original game. As friction decreases, a strict Nash outcome becomes the only stable and reachable outcome if it satisfies the risk-dominance criterion. This supports the idea that risk-dominance plays a crucial role in equilibrium selection.