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This paper provides a step-by-step guide to solving dynamic stochastic games using the homotopy method. The homotopy method facilitates exploring the equilibrium correspondence in a systematic fashion; it is especially useful in games that have multiple equilibria. We discuss the theory of the homotopy method and its implementation and present two detailed examples of dynamic stochastic games that are solved using this method.
computation, dynamic stochastic games, homotopy method, Markov-perfect equilibrium
Borkovsky, R. N., Doraszelski, U., & Kryukov, Y. (2010). A User’s Guide to Solving Dynamic Stochastic Games Using the Homotopy Method. Operations Research, 58 (4), 1116-1132. http://dx.doi.org/10.1287/opre.1100.0843
Date Posted: 27 November 2017
This document has been peer reviewed.