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Multiple Equilibria and Economic Theory

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Multiple Equilibria and Economic Theory
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29
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CC Attribution - NonCommercial - NoDerivatives 2.5 Switzerland:
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Many economic contexts possess multiple equilibria. These situations are important for many reasons, including because they are often where traditional theoretical approaches fail to generate precise or accurate predictions. I discuss recent experimental studies that demonstrate how, in situations with multiple equilibria, behavior can change dramatically in ways unaccounted for by current theoretical models. This evidence highlights the need for improved behavioral theories of equilibrium selection, comparable to advances in other areas of behavioral economic research.