A User's Guide to Solving Dynamic Stochastic Games Using the Homotopy Method

Authors:
Ron N. Borkovsky;Ulrich Doraszelski;Yaroslav Kryukov
Affiliations:
Rotman School of Management, University of Toronto, Toronto, Ontario M5S 3E6, Canada;Department of Economics, Harvard University, Cambridge, Massachusetts 02138;Tepper School of Business, Carnegie Mellon University, Pittsburgh, Pennsylvania 15213
Venue:
Operations Research
Year:
2010

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Abstract

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.