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Loss of Commitment? An Evolutionary Analysis of Bagwell’s Example

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  • Jörg Oechssler
  • Karl H Schlag

Abstract

In a recent paper Bagwell (1995) pointed out that only the Cournot outcome, but not the Stackelberg outcome, can be supported by a pure Nash equilibrium when actions of the Stackelberg leader are observed with the slightest error. The Stackelberg outcome, however, remains close to the outcome of a mixed equilibrium. We compare the predictions in various classes of evolutionary and learning processes in this game. Only the continuous best response dynamic uniquely selects the Stackelberg outcome under noise. All other dynamics analyzed allow for the Cournot equilibrium to be selected. In typical cases Cournot is the unique long run outcome even for vanishing noise in the signal.

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Bibliographic Info

Paper provided by David K. Levine in its series Levine's Working Paper Archive with number 598.

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Date of creation: 14 May 1997
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Handle: RePEc:cla:levarc:598

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  1. Friedman, Daniel, 1991. "Evolutionary Games in Economics," Econometrica, Econometric Society, vol. 59(3), pages 637-66, May.
  2. Guth, Werner & Kirchsteiger, Georg & Ritzberger, Klaus, 1998. "Imperfectly Observable Commitments inn-Player Games," Games and Economic Behavior, Elsevier, vol. 23(1), pages 54-74, April.
  3. repec:wop:humbsf:1996-84 is not listed on IDEAS
  4. Karl H. Schlag, . "Why Imitate, and if so, How? A Bounded Rational Approach to Multi- Armed Bandits," ELSE working papers 028, ESRC Centre on Economics Learning and Social Evolution.
  5. Matsui, Akihiko, 1992. "Best response dynamics and socially stable strategies," Journal of Economic Theory, Elsevier, vol. 57(2), pages 343-362, August.
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  8. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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  10. Bagwell, Kyle, 1995. "Commitment and observability in games," Games and Economic Behavior, Elsevier, vol. 8(2), pages 271-280.
  11. R. Cressman & K.H. Schlag, . "The Dynamic (In)Stability of Backwards Induction," ELSE working papers 027, ESRC Centre on Economics Learning and Social Evolution.
  12. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  13. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  14. Schlag, Karl H., 1994. "Why Imitate, and if so, How? Exploring a Model of Social Evolution," Discussion Paper Serie B 296, University of Bonn, Germany.
  15. Dan Friedman, 2010. "Evolutionary Games in Economics," Levine's Working Paper Archive 392, David K. Levine.
  16. Oechssler, Jorg, 1997. "An Evolutionary Interpretation of Mixed-Strategy Equilibria," Games and Economic Behavior, Elsevier, vol. 21(1-2), pages 203-237, October.
  17. B. Adolph, 1996. "Commitment, Trembling Hand Imperfection and Observability in Games," SFB 373 Discussion Papers 1996,84, Humboldt University of Berlin, Interdisciplinary Research Project 373: Quantification and Simulation of Economic Processes.
  18. Gale, John & Binmore, Kenneth G. & Samuelson, Larry, 1995. "Learning to be imperfect: The ultimatum game," Games and Economic Behavior, Elsevier, vol. 8(1), pages 56-90.
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Cited by:
  1. Morgan, John & Vardy, Felix, 2007. "The value of commitment in contests and tournaments when observation is costly," Games and Economic Behavior, Elsevier, vol. 60(2), pages 326-338, August.

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