Abstract
Dhillon and Mertens (1996) introduce the concept of perfect correlated equilibrium (PCE) and show, using an example, that the revelation principle fails for PCE —that is, a PCE distribution may not be generated by the canonical mechanism. This failure of the revelation principle jeopardizes its applications in economics. In this paper, we show that the revelation principle holds for an alternative notion of perfect correlated equilibrium that we dub correlated equilibrium with message-dependent trembles (CEMDT). The notion of CEMDT is fully characterized by undominated correlated equilibria that involve admissible actions only. Moreover, any CEMDT distribution can be represented by an incentive-compatible direct-revelation mechanism; the set of CEMDT distributions is a convex polyhedron that contains all perfect equilibria. Our paper thus provides a strategic foundation for undominated correlated equilibrium. We also show that the CEMDT distribution is equivalent to a weak version of acceptable correlated equilibrium (ACE) as in Myerson (1986a) (and equivalent to ACE in two-person games).
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
