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Evolutionary stability in a reputational model of bargaining

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  • Abreu, Dilip
  • Sethi, Rajiv

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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  1. Dekel, Eddie & Scotchmer, Suzanne, 1992. "On the evolution of optimizing behavior," Journal of Economic Theory, Elsevier, vol. 57(2), pages 392-406, August.
  2. Karl H. Schlag & Dieter Balkenborg, 2001. "Evolutionarily stable sets," International Journal of Game Theory, Springer, vol. 29(4), pages 571-595.
  3. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  4. Stahl Dale O., 1993. "Evolution of Smartn Players," Games and Economic Behavior, Elsevier, vol. 5(4), pages 604-617, October.
  5. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-36, July.
  7. Chatterjee, Kalyan & Samuelson, Larry, 1987. "Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 175-92, April.
  8. Kreps, David M. & Wilson, Robert, 1982. "Reputation and imperfect information," Journal of Economic Theory, Elsevier, vol. 27(2), pages 253-279, August.
  9. D. Abreu & F. Gul, 1998. "Bargaining and Reputation," Princeton Economic Theory Papers 00s9, Economics Department, Princeton University.
  10. 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.
  11. 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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  13. 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.
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Cited by:
  1. Daniel Friedman & Nirvikar Singh, 2002. "Equilibrium Vengeance," CESifo Working Paper Series 766, CESifo Group Munich.
  2. Jack Robles, 2008. "Evolution, bargaining, and time preferences," Economic Theory, Springer, vol. 35(1), pages 19-36, April.
  3. 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.
  4. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2008. "Voluntarily Separable Repeated Prisoner's Dilemma," CIRJE F-Series CIRJE-F-599, CIRJE, Faculty of Economics, University of Tokyo.
  5. Thierry Vignolo, 2007. "Imitation and Selective Matching in Reputational Games," Economics Working Papers ECO2007/31, European University Institute.
  6. Konrad, Kai A. & Morath, Florian, 2012. "Evolutionarily stable in-group favoritism and out-group spite in intergroup conflict," Munich Reprints in Economics 13963, University of Munich, Department of Economics.

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