Schelling Point as a Refinement of Nash Equilibrium

Abstract

This article proposes using Schelling point as a refinement of Nash equilibrium. It also introduces an algorithm way to locate Schelling points in games. The paper shows that in pure coordination games and games with significant proportion of coordination (and certain proportion of conflict), the algorithm proposed could locate the Schelling points. The existence of a Schelling point means that the proportion of common interests versus conflict of interests has crossed a certain threshold and there- fore a ertain form of ooperation or oexisten e is possible. Besides, using S helling point as a re nement of Nash equilibrium narrows down the set of equilibriums to only stable equilibriums as unstable equilibriums ould not be S helling points. Finally, the paper shows that the proposed approa h ould solve a larger set of games than the urrent approa h based on Nash equilibrium. For instan e, it would be very di ult to solve multiple sided in omplete information games under the urrent approa h based on Nash equilibrium while the proposed approa h ould readily solve multiple sided in omplete information games.