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Stochastic strategy adjustment in coordination games

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Author Info
Kosfeld, M. (Tilburg University, Faculty of Economics and Business Administration)

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Abstract

We explore a model of equilibrium selection in coordination games, where agents stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, we assume that agents follow a rule of "switching to better strategies more likely". We relate this behavior to work of Rosenthal (1989) and Schlag (1998). Our main results are that both strict Nash equilibria of the coordination game correspond to stationary 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 share of agents playing the risk-dominant strategy has at least some positive measure, how ever small, within the whole population.

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Paper provided by Tilburg University, Faculty of Economics and Business Administration in its series Research Memorandum with number 775.

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Date of creation: 1999
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Handle: RePEc:dgr:kubrem:1999775

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Keywords: coordination;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games

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References listed on IDEAS
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  1. Bergin, James & Lipman, Barton L, 1996. "Evolution with State-Dependent Mutations," Econometrica, Econometric Society, vol. 64(4), pages 943-56, July. [Downloadable!] (restricted)
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  2. Lawrence Blume, 1993. "The Statistical Mechanics of Best-Response Strategy Revision," Game Theory and Information 9307001, EconWPA, revised 26 Jan 1994. [Downloadable!]
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  3. 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.
  4. Rosenthal, Robert W, 1989. "A Bounded-Rationality Approach to the Study of Noncooperative Games," International Journal of Game Theory, Springer, vol. 18(3), pages 273-91.
  5. 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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  6. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September. [Downloadable!] (restricted)
  7. Blume Lawrence E., 1993. "The Statistical Mechanics of Strategic Interaction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 387-424, July. [Downloadable!] (restricted)
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  9. Jong-Il Kim & Lawrence J. Lau, 1996. "The sources of Asian Pacific economic growth," Canadian Journal of Economics, Canadian Economics Association, vol. 29(s1), pages 448-54, April. [Downloadable!] (restricted)
  10. Schlag, Karl H., 1998. "Why Imitate, and If So, How?, : A Boundedly Rational Approach to Multi-armed Bandits," Journal of Economic Theory, Elsevier, vol. 78(1), pages 130-156, January. [Downloadable!] (restricted)
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  11. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January. [Downloadable!] (restricted)
  12. Lawrence E. Blume, 1994. "How Noise Matters," Game Theory and Information 9407002, EconWPA, revised 27 Jul 1994. [Downloadable!]
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  13. Kim, Yong-Gwan & Sobel, Joel, 1995. "An Evolutionary Approach to Pre-play Communication," Econometrica, Econometric Society, vol. 63(5), pages 1181-93, September. [Downloadable!] (restricted)
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  14. Sergiu Hart & Andreu Mas-Colell, 1997. "A Simple Adaptive Procedure Leading to Correlated Equilibrium," Game Theory and Information 9703006, EconWPA, revised 24 Mar 1997. [Downloadable!]
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  15. Young, H.P., 1999. "Diffusion in Social Networks," Papers 2, Brookings Institution - Working Papers.
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Michael Kosfeld, . "Network Experiments," IEW - Working Papers iewwp152, Institute for Empirical Research in Economics - IEW. [Downloadable!]
  2. Falk, Armin & Kosfeld, Michael, 2003. "It's All About Connections: Evidence on Network Formation," CEPR Discussion Papers 3970, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  3. Kosfeld, M., 1999. "Why shops close again : an evolutionary perspective on the deregulation of shopping hours," Research Memorandum 776, Tilburg University, Faculty of Economics and Business Administration. [Downloadable!]
    Other versions:
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