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A Trade Network Game With Endogenous Partner Selection

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  • Leigh TESFATSION

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Abstract

This paper develops a Trade Network Game (TNG) that combines evolutionary game play with endogenous partner selection. Resource- constrained buyers and sellers choose and refuse trade partners on the basis of continually updated expected payoffs. Partner selection takes place in accordance with a "deferred choice and refusal" mechanism that is shown to have interesting stability, optimality, and uniqueness properties. The iterated prisoner's dilemma strategies used by buyers and sellers to conduct their trades are evolved over time via a genetic algorithm that biases reproduction in favor of strategies that have been successful in past trades. The TNG is shown to encompass a variety of economic applications, such as job search games, labor markets modelled as assignment games, labor markets with endogenously determined workers and employers, and double auction games. To illustrate the way in which preferential partner selection interacts with game play in the TNG, resulting in the endogenous formation of trade networks, a 5-trader TNG is analyzed in detail.

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File URL: http://purl.umn.edu/18191
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Bibliographic Info

Paper provided by Iowa State University Department of Economics in its series Economic Report with number 36.

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Date of creation: May 1995
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Handle: RePEc:isu:iowaer:36

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Postal: Iowa State University, Dept. of Economics, 260 Heady Hall, Ames, IA 50011-1070
Phone: +1 515.294.6741
Fax: +1 515.294.0221
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Web page: http://www.econ.iastate.edu
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Related research

Keywords: Trade networks; evolutionary game; optimal search; endogenous interactions; iterated prisoner's dilemma; multi-armed bandit game; assignment game; preferential partner matching; genetic algorithm; artificial life; criterion filtering.;

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References

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  1. Yannis M. Ioannides, 1996. "Evolution of Trading Structures," Working Papers 96-04-020, Santa Fe Institute.
  2. McFadzean, David & Tesfatsion, Leigh S., 1999. "A C++ Platform for the Evolution of Trade Networks," Staff General Research Papers 1639, Iowa State University, Department of Economics.
  3. Stanley, E.A. & Ashlock, Daniel & Tesfatsion, Leigh, 1994. "Iterated Prisoner's Dilemma with Choice and Refusal of Partners," Staff General Research Papers 11180, Iowa State University, Department of Economics.
  4. Dan Ashlock & Mark D. Smucker & E. Ann Stanley & Leigh Tesfatsion, 1995. "Preferential Partner Selection in an Evolutionary Study of Prisoner's Dilemma," Game Theory and Information 9501002, EconWPA, revised 20 Jan 1995.
  5. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  6. Alan P. Kirman, 1995. "Economies with Interacting Agents," Discussion Paper Serie A 500, University of Bonn, Germany.
  7. Esther Hauk, . "Leaving the Prison: A Discussion of the Iterated Prisoner's Dilemma under Preferential Partner Selection," Computing in Economics and Finance 1996 _067, Society for Computational Economics.
  8. Brock, William A & Durlauf, Steven N, 2001. "Discrete Choice with Social Interactions," Review of Economic Studies, Wiley Blackwell, vol. 68(2), pages 235-60, April.
  9. Hirshlifer, David & Rassmusen, Eric, 1989. "Cooperation in a repeated prisoners' dilemma with ostracism," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 87-106, August.
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