Econometrica: Sep, 2012, Volume 80, Issue 5

Noisy Stochastic Games

https://doi.org/10.3982/ECTA10125
p. 2017-2045

John Duggan

This paper establishes existence of a stationary Markov perfect equilibrium in general stochastic games with noise—a component of the state that is nonatomically distributed and not directly affected by the previous period's state and actions. Noise may be simply a payoff‐irrelevant public randomization device, delivering known results on the existence of correlated equilibrium as a special case. More generally, noise can take the form of shocks that enter into players' stage payoffs and the transition probability on states. The existence result is applied to a model of industry dynamics and to a model of dynamic electoral competition.