Conventions - Some Conventional and Some Not So Conventional Wisdom
AbstractIn this paper we consider conventions as regularities in behavior which help to solve coordination problems in a society. These problems can be formalized as non-cooperative games with several equilibria. We know that in such situations serious problems of equilibrium selection arise which cannot be solved by traditional game theoretical reasoning. Conventions seem to be a powerful tool to solve equilibrium selection problems in real world societies. Essentially, two questions will be addressed in this paper: a) Which conventions will emerge in a society? b) How can a society break away from an inferior and reach a superior convention? It turns out that "risk dominance" of a convention plays a crucial role in dealing with both questions and generally in the evolution of conventions.
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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2004-37.
Length: 25 pages
Date of creation: Nov 2004
Date of revision:
Other versions of this item:
- Siegfried Berninghaus & Werner Güth & Hartmut Kliemt, 2005. "Conventions: Some Conventional and Some Not So Conventional Wisdom," Homo Oeconomicus, Institute of SocioEconomics, vol. 22, pages 147-168.
- NEP-ALL-2004-12-12 (All new papers)
- NEP-CBE-2004-12-12 (Cognitive & Behavioural Economics)
- NEP-EVO-2004-12-12 (Evolutionary Economics)
- NEP-HPE-2004-12-12 (History & Philosophy of Economics)
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- Berninghaus, Siegfried K. & Ehrhart, Karl-Martin & Keser, Claudia, 2002. "Conventions and Local Interaction Structures: Experimental Evidence," Games and Economic Behavior, Elsevier, vol. 39(2), pages 177-205, May.
- 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.
- Boyer, Robert & Orlean, Andre, 1992. "How Do Conventions Evolve?," Journal of Evolutionary Economics, Springer, vol. 2(3), pages 165-77, October.
- Cooper, Russell & De Jong, Douglas V. & Forsythe, Robert & Ross, Thomas W., 1992. "Forward induction in coordination games," Economics Letters, Elsevier, vol. 40(2), pages 167-172, October.
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