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Stochastic strategy adjustment in coordination games

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  • Michael Kosfeld

    ()
    (Institute for Empirical Research in Economics, University of Zurich, Blümlisalpstrasse 10, 8006 Zürich, SWITZERLAND)

Abstract

The paper explores a model of equilibrium selection in coordination games, where agents from an infinite population stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, it is assumed that agents follow a rule of `switching to better strategies with higher probability'. This behavioral rule is related to bounded-rationality models of Rosenthal (1989) and Schlag (1998). Moreover, agents stay with their strategy in case they successfully coordinate with their local neighbors. Our main results show that both strict Nash equilibria of the coordination game correspond to invariant distributions of the process, hence evolution of play is not ergodic but instead depends on initial conditions. However, coordination on the risk-dominant equilibrium occurs with probability one whenever the initial fraction contains infinitely many agents, independent of the spatial distribution of these agents.

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Bibliographic Info

Article provided by Springer in its journal Economic Theory.

Volume (Year): 20 (2002)
Issue (Month): 2 ()
Pages: 321-339

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Handle: RePEc:spr:joecth:v:20:y:2002:i:2:p:321-339

Note: Received: March 14, 2000; revised version: June 21, 2001
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Related research

Keywords: Equilibrium selection; Coordination game; Evolution; Strategy adjustment.;

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Cited by:
  1. S. Rosenkranz & G.U. Weitzel, 2008. "Network Structure and Strategic Investments: An Experimental Analysis," Working Papers 08-24, Utrecht School of Economics.
  2. Falk Armin & Kosfeld Michael, 2012. "It's all about Connections: Evidence on Network Formation," Review of Network Economics, De Gruyter, vol. 11(3), pages 1-36, September.
  3. Takács, Károly, 2010. "Hálózati kísérletek
    [Network experiments]
    ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 958-979.
  4. Horst, Ulrich, 2010. "Dynamic systems of social interactions," Journal of Economic Behavior & Organization, Elsevier, vol. 73(2), pages 158-170, February.
  5. Steffen Huck & Michael Kosfeld, 2007. "The Dynamics of Neighbourhood Watch and Norm Enforcement," Economic Journal, Royal Economic Society, vol. 117(516), pages 270-286, 01.
  6. Kosfeld, Michael, 2002. "Why shops close again: An evolutionary perspective on the deregulation of shopping hours," European Economic Review, Elsevier, vol. 46(1), pages 51-72, January.
  7. Michael Kosfeld, . "Network Experiments," IEW - Working Papers 152, Institute for Empirical Research in Economics - University of Zurich.

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