THE FARSIGHTED STABLE SET

Harsanyi (1974) criticized the von Neumann-Morgenstern (vNM) stable set for its presumption that coalitions are myopic about their prospects. He proposed a new dominance relation incorporating farsightedness, but retained another feature of the stable set: that a coalition S can impose any imputatio...

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Bibliographic Details
Published in:Econometrica 2015-05, Vol.83 (3), p.977-1011
Main Authors: Ray, Debraj, Vohra, Rajiv
Format: Article
Language:English
Subjects:
Allocative efficiency
Bargaining theory
Coalition bargaining
coalition formation
Coalitions
Core
Criticism
Econometrics
Economic analysis
Economic theory
Eigenfunctions
farsightedness
Game theory
Games
Hyperopia
Pay-off
Return on investment
simple games
Sovereignty
stable set
Studies
veto players
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Summary:Harsanyi (1974) criticized the von Neumann-Morgenstern (vNM) stable set for its presumption that coalitions are myopic about their prospects. He proposed a new dominance relation incorporating farsightedness, but retained another feature of the stable set: that a coalition S can impose any imputation as long as its restriction to S is feasible for it. This implicitly gives an objecting coalition complete power to arrange the payoffs of players elsewhere, which is clearly unsatisfactory. While this assumption is largely innocuous for myopic dominance, it is of crucial significance for its farsighted counterpart. Our modification of the Harsanyi set respects "coalitional sovereignty." The resulting farsighted stable set is very different from both the Harsanyi and the vNM sets. We provide a necessary and sufficient condition for the existence of a farsighted stable set containing just a single-payoff allocation. This condition roughly establishes an equivalence between core allocations and the union of allocations over all single-payoff farsighted stable sets. We then conduct a comprehensive analysis of the existence and structure of farsighted stable sets in simple games. This last exercise throws light on both single-payoff and multi-payoff stable sets, and suggests that they do not coexist.
ISSN:0012-9682
1468-0262
DOI:10.3982/ECTA12022