N-player games and mean-field games with absorption

We introduce a simple class of mean field games with absorbing boundary over a finite time horizon. In the corresponding N-player games, the evolution of players’ states is described by a system of weakly interacting Itô equations with absorption on first exit from a bounded open set. Once a player exits, her/his contribution is removed from the empirical measure of the system. Players thus interact through a renormalized empirical measure. In the definition of solution to the mean field game, the renormalization appears in form of a conditional law. We justify our definition of solution in the usual way, that is, by showing that a solution of the mean field game induces approximate Nash equilibria for the N-player games with approximation error tending to zero as N tends to infinity. This convergence is established provided the diffusion coefficient is non-degenerate. The degenerate case is more delicate and gives rise to counter-examples.