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Log-linear Dynamics and Local Potential

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Author Info
Daijiro Okada () (Department of Economics, Rutgers, The State University of New Jersey)
Olivier Tercieux () (Paris School of Economics and CNRS)
Abstract

We show that local potential maximizer ([15]) with constant weights is stochas- tically stable in the log-linear dynamics provided that the payo® function or the associated local potential function is supermodular. We illustrate and discuss, through a series of examples, the use of our main results as well as other concepts closely related to local potential maximizer: weighted potential maximizer, p- dominance. We also discuss the log-linear processes where each player's stochastic choice rule converges to the best response rule at di®erent rates. For 2£2 games, we examine a modi¯ed log-linear dynamics (relative log-linear dynamics) under which local potential maximizer with strictly positive weights is stochastically sta- ble. This in particular implies that for 2 £ 2 games a strict (p1; p2)-dominant equilibrium with p1 + p2 < 1 is stochastically stable under the new dynamics.

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Paper provided by Institute for Advanced Study, School of Social Science in its series Economics Working Papers with number 0085.

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Length: 50 pages
Date of creation: Nov 2008
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Handle: RePEc:ads:wpaper:0085

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Related research
Keywords: Log-linear dynamics; Relative log-linear dynamics; Stochastic stability; local potential maximizer; p-dominant equilibrium; equilibrium selection; stochastic order; comparison of Markov chains;

Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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  3. Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January. [Downloadable!] (restricted)
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  4. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July. [Downloadable!] (restricted)
  5. Frankel, David M. & Morris, Stephen & Pauzner, Ady, 2003. "Equilibrium selection in global games with strategic complementarities," Journal of Economic Theory, Elsevier, vol. 108(1), pages 1-44, January. [Downloadable!] (restricted)
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  6. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, vol. 61(5), pages 989-1018, September. [Downloadable!] (restricted)
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  7. Ellison, Glenn, 2000. "Basins of Attraction, Long-Run Stochastic Stability, and the Speed of Step-by-Step Evolution," Review of Economic Studies, Blackwell Publishing, vol. 67(1), pages 17-45, January.
  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  9. Morris, Stephen & Ui, Takashi, 2005. "Generalized potentials and robust sets of equilibria," Journal of Economic Theory, Elsevier, vol. 124(1), pages 45-78, September. [Downloadable!] (restricted)
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  10. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May. [Downloadable!] (restricted)
  11. Oyama, Daisuke & Takahashi, Satoru & Hofbauer, Josef, 2008. "Monotone methods for equilibrium selection under perfect foresight dynamics," Theoretical Economics, Society for Economic Theory, vol. 3(2), pages 155-192, June. [Downloadable!]
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  12. Morris, Stephen & Rob, Rafael & Shin, Hyun Song, 1995. "Dominance and Belief Potential," Econometrica, Econometric Society, vol. 63(1), pages 145-57, January. [Downloadable!] (restricted)
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