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Noise Matters in Heterogeneous Populations

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  • Tom Quilter
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    Abstract

    The concept of boundedly rational agents in evolutionary game theory has succeeded in producing clear results when traditional methodology was failing. However the majority of such papers have obtained their results when this bounded rationality itself vanishes. This paper considers whether such results are actually a good reflection of a population whose bounded rationality is small, but non-vanishing. We also look at a heterogenous population who play a co-ordination game but have conflicting interests, and investigate the stability of an equilibria where two strategies co-exist together. Firstly, I find that results using the standard vanishing noise approach can be very different from those obtained when noise is small but persistent. Secondly, when the results differ it is the non-vanishing noise approach which selects the co-existence equilibria. As recent economic and psychology studies highlight the irrationality of their human subjects, this paper seeks to further demonstrate that the literature needs to concentrate more on the analysis of truly noisy populations.

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    Bibliographic Info

    Paper provided by Edinburgh School of Economics, University of Edinburgh in its series ESE Discussion Papers with number 169.

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    Length: 42
    Date of creation: 01 Sep 2007
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    Handle: RePEc:edn:esedps:169

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    Keywords: Non-vanishing noise; equilibrium selection; strategy co-existence.;

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    1. David P. Myatt & Chris Wallace, 2002. "Adaptive Play by Idiosyncratic Agents," Economics Series Working Papers 89, University of Oxford, Department of Economics.
    2. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
    3. Robson, Arthur J. & Vega-Redondo, Fernando, 1996. "Efficient Equilibrium Selection in Evolutionary Games with Random Matching," Journal of Economic Theory, Elsevier, vol. 70(1), pages 65-92, July.
    4. Ellison, Glenn, 2000. "Basins of Attraction, Long-Run Stochastic Stability, and the Speed of Step-by-Step Evolution," Review of Economic Studies, Wiley Blackwell, vol. 67(1), pages 17-45, January.
    5. Thomas Norman, 2003. "The Evolution of Coordination under Inertia," Economics Papers 2003-W06, Economics Group, Nuffield College, University of Oxford.
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    Cited by:
    1. Neary, Philip R., 2012. "Competing conventions," Games and Economic Behavior, Elsevier, vol. 76(1), pages 301-328.

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