Mean Field Equilibrium in Dynamic Games with Strategic Complementarities

• Published in: Operations research 2013-07, Vol.61 (4), p.971-989
• Main Authors: Adlakha, Sachin, Johari, Ramesh
• Format: Article
• Language: English
• Subjects: Equilibrium; Game theory; mean field equilibrium; METHODS; stochastic games; Stochastic models; Stochastic processes; strategic complementarities; Studies
• ISSN: 0030-364X; 1526-5463
• DOI: 10.1287/opre.2013.1192

We study a class of stochastic dynamic games that exhibit strategic complementarities between players; formally, in the games we consider, the payoff of a player has increasing differences between her own state and the empirical distribution of the states of other players. Such games can be used to model a diverse set of applications, including network security models, recommender systems, and dynamic search in markets. Stochastic games are generally difficult to analyze, and these difficulties are only exacerbated when the number of players is large (as might be the case in the preceding examples). We consider an approximation methodology called mean field equilibrium to study these games. In such an equilibrium, each player reacts to only the long-run average state of other players. We find necessary conditions for the existence of a mean field equilibrium in such games. Furthermore, as a simple consequence of this existence theorem, we obtain several natural monotonicity properties. We show that there exist a “largest” and a “smallest” equilibrium among all those where the equilibrium strategy used by a player is nondecreasing, and we also show that players converge to each of these equilibria via natural myopic learning dynamics ; as we argue, these dynamics are more reasonable than the standard best-response dynamics. We also provide sensitivity results, where we quantify how the equilibria of such games move in response to changes in parameters of the game (for example, the introduction of incentives to players).