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Imitators and Optimizers in a Changing Environment

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  • Hehenkamp, Burkhard

    ()
    (Department of Economics, University of Dortmund)

  • Kaarbøe, Oddvar M.

    ()
    (Programme for Health Economics (HEB), Department of Economics, University of Bergen)

Abstract

We analyze the dynamic interaction between imitation and myopic optimization in an environment of changing marginal payoffs. Focusing on finite irreducible environments, we unfold a trade-off between the degree of interaction and the size of environmental shocks. The optimizer outperforms the imitator if interaction is weak or if shocks are large. We use the example of Cournot duopoly to give economic meaning to this condition. To establish our main result, we rely on continuous state space Markov theory. In particular, it turns out that introducing a stochastic environment with finitely many states suffices to make an otherwise deterministic process ergodic.

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Bibliographic Info

Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 03/03.

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Length: 31 pages
Date of creation: 21 Jun 2003
Date of revision:
Handle: RePEc:hhs:bergec:2003_003

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Related research

Keywords: imitation; optimization; evolution; heterogeneous learning rules; changing environments;

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References

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  1. Gale, D. & Rosental, R.W., 1996. "Experimentation, Imitation, and Stochastic Stability," Papers, Boston University - Industry Studies Programme 65, Boston University - Industry Studies Programme.
  2. Rhode, Paul & Stegeman, Mark, 2001. "Non-Nash equilibria of Darwinian dynamics with applications to duopoly," International Journal of Industrial Organization, Elsevier, Elsevier, vol. 19(3-4), pages 415-453, March.
  3. Schenk-Hoppe, Klaus Reiner, 2000. "The evolution of Walrasian behavior in oligopolies," Journal of Mathematical Economics, Elsevier, vol. 33(1), pages 35-55, February.
  4. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, Econometric Society, vol. 65(2), pages 375-384, March.
  5. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers, Princeton, Woodrow Wilson School - John M. Olin Program 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  6. Droste, E. & Hommes, C.H. & Tuinstra, J., 1999. "Endogenous Fluctuations under Evolutionary Pressure in Cournot Competition," CeNDEF Working Papers 99-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
  7. Gale, Douglas & Rosenthal, Robert W., 2001. "Experimentation, Imitation, and Stochastic Stability: Addendum," Journal of Economic Theory, Elsevier, Elsevier, vol. 97(1), pages 164-174, March.
  8. Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 1(3), pages 275-293, September.
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Citations

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Cited by:
  1. Peter Duersch & Joerg Oechssler & Burkhard Schipper, 2011. "Once Beaten, Never Again: Imitation in Two-Player Potential Games," Working Papers, University of California, Davis, Department of Economics 1112, University of California, Davis, Department of Economics.
  2. Schipper, Burkhard C., 2005. "Imitators and Optimizers in Cournot Oligopoly," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 53, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  3. Schipper, Burkhard C, 2011. "Strategic control of myopic best reply in repeated games," MPRA Paper 30219, University Library of Munich, Germany.
  4. Josephson, Jens, 2001. "Stochastic Adaptation in Finite Games Played by Heterogeneous Populations," Working Paper Series in Economics and Finance 475, Stockholm School of Economics.
  5. Fosco, Constanza & Mengel, Friederike, 2011. "Cooperation through imitation and exclusion in networks," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 35(5), pages 641-658, May.
  6. Matros, Alexander, 2012. "Altruistic versus egoistic behavior in a Public Good game," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 36(4), pages 642-656.

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