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Abstract

A large and growing literature on reputation in games builds on the insight that the possibility of one or more players being other than fully rational can have significant effects on equilibrium behavior. This literature leaves unexplained the presence of behavioral players in the first place, and the particular forms of irrationality assumed. In this paper we endogenize departures from rationality on the basis of an evolutionary stability criterion, under the assumption that rational players incur a cost which reflects the greater sophistication of their behavior. This cost may be arbitrarily small. Within the context of a reputational model of bargaining, we show that evolutionary stability necessitates the presence of behavioral players, and places significant restrictions on the set of behavioral types that can coexist. It is consistent, however, with a broad variety of outcomes ranging from immediate agreement to complete surplus dissipation. The long run population share of behavioral types is greatest at states in which surplus dissipation is either negligible or almost complete.

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Bibliographic Info

Article provided by Elsevier in its journal Games and Economic Behavior.

Volume (Year): 44 (2003)
Issue (Month): 2 (August)
Pages: 195-216

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Handle: RePEc:eee:gamebe:v:44:y:2003:i:2:p:195-216

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Web page: http://www.elsevier.com/locate/inca/622836

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Find related papers by JEL classification:

• C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

References

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1. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
   
   • Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
2. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
   
   • David Kreps & Paul Milgrom & John Roberts & Bob Wilson, 2010. "Rational Cooperation in the Finitely Repeated Prisoners' Dilemma," Levine's Working Paper Archive 239, David K. Levine.
3. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
4. Karl H. Schlag & Dieter Balkenborg, 2001. "Evolutionarily stable sets," International Journal of Game Theory, Springer, vol. 29(4), pages 571-595.
5. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
6. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
   
   • Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
7. D. Stahl, 2010. "Evolution of Smart n Players," Levine's Working Paper Archive 401, David K. Levine.
   
   • Stahl Dale O., 1993. "Evolution of Smartn Players," Games and Economic Behavior, Elsevier, vol. 5(4), pages 604-617, October.
   • Stahl, D., 1991. "Evolution of Smart-n Players," Discussion Paper 1991-66, Tilburg University, Center for Economic Research.
   • Stahl II, D.O., 1991. "Evolution of Smart Players," Papers 9166, Tilburg - Center for Economic Research.
8. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-36, July.
9. Guttman, Joel M., 1996. "Rational actors, tit-for-tat types, and the evolution of cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 29(1), pages 27-56, January.
10. Paul Milgrom & John Roberts, 1997. "Predation, reputation , and entry deterrence," Levine's Working Paper Archive 1460, David K. Levine.
    
    • Milgrom, Paul & Roberts, John, 1982. "Predation, reputation, and entry deterrence," Journal of Economic Theory, Elsevier, vol. 27(2), pages 280-312, August.
    • Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
11. E. Dekel & S. Scotchmer, 2010. "On the Evolution of Optimizing Behavior," Levine's Working Paper Archive 434, David K. Levine.
    
    • Dekel, Eddie & Scotchmer, Suzanne, 1992. "On the evolution of optimizing behavior," Journal of Economic Theory, Elsevier, vol. 57(2), pages 392-406, August.
12. Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 275-293, September.

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Citations

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Cited by:

1. Daniel Friedman & Nirvikar Singh, 2002. "Equilibrium Vengeance," CESifo Working Paper Series 766, CESifo Group Munich.
   
   • Friedman, Daniel & Singh, Nirvikar, 2009. "Equilibrium vengeance," Games and Economic Behavior, Elsevier, vol. 66(2), pages 813-829, July.
   • Friedman, Daniel & Singh, Nirvikar, 2007. "Equilibrium Vengeance," MPRA Paper 4321, University Library of Munich, Germany.
2. Kai A. Konrad & Florian Morath, 2011. "Evolutionarily stable in-group favoritism and out-group spite in intergroup conflict," Working Papers evolutionarily_stable, Max Planck Institute for Tax Law and Public Finance.
3. Thierry Vignolo, 2010. "Imitation and selective matching in reputational games," Journal of Evolutionary Economics, Springer, vol. 20(3), pages 395-412, June.
   
   • Thierry Vignolo, 2007. "Imitation and Selective Matching in Reputational Games," Economics Working Papers ECO2007/31, European University Institute.
4. Jack Robles, 2008. "Evolution, bargaining, and time preferences," Economic Theory, Springer, vol. 35(1), pages 19-36, April.
5. Crawford, Vincent P., 2001. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," University of California at San Diego, Economics Working Paper Series qt6k65014s, Department of Economics, UC San Diego.
   
   • Vincent P. Crawford, 2003. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," American Economic Review, American Economic Association, vol. 93(1), pages 133-149, March.

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