Social norms and random matching games

Abstract

Nash equilibrium has been tremendously useful in understanding economic problems in which strategic behavior is important. The theoretical foundations of the solution concept often include the assumption that the game to be played is common knowledge, an unrealistic assumption in games with many players. We introduce the concept of norm equilibrium for random matching games. A norm equilibrium is a Nash equilibrium that relies on substantially less information than common knowledge of the game. We use norm equilibria to provide a folk theorem for random matching games and to analyze increasing numbers of players in a random matching game. Journal of Economic Literature Classification Numbers: C70, C72. © 1995 Academic Press. All rights reserved.