Minimum-effort coordination games: Stochastic potential and logit equilibrium

This paper revisits the minimum-effort coordination game with a continuum o f Pareto-ranked Nash equilibria. Noise is introduced via a logit probabilis tic choice function. The resulting logit equilibrium distribution of decisi ons is unique and maximizes a stochastic potential function. In the limit a s the noise vanishes, the distribution converges to an outcome that is anal ogous to the risk-dominant outcome for 2 x 2 games. In accordance with expe rimental evidence, logit equilibrium efforts decrease with increases in eff ort costs and the number of players, even though these parameters do not af fect the Nash equilibria. Classification Numbers: C72, C92. (C) 2001 Academ ic Press.