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The Evolution of Exchange

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Author Info

  • Roberto Serrano

    (Department of Economics, Brown University.)

  • Assaf Ben-Shoham

    (Department of Economics, Hebrew University.)

  • Oscar Volij

    (Department of Economics, Brown University, and Department of Economics, Hebrew University of Jerusalem.)

Abstract

Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set of stochastically stable allocations contains the set of efficient allocations. When more serious mistakes are less likely, the stochastically stable states are those allocations, always efficient, with the lowest envy-level.

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Bibliographic Info

Paper provided by Oscar Volij in its series Economic theory and game theory with number 012.

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Date of creation: 25 May 2000
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Publication status: Published in Journal of Economic Theory, 114, (2004), 310-328.
Handle: RePEc:nid:ovolij:012

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Postal: Oscar Volij, Department of Economics, Ben-Gurion University, Beer-Sheva 84105, Israel
Web page: http://volij.co.il/

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Keywords: stochastic stability; exchange; housing problem; efficiency; envy.;

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References

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  1. M. Kandori & G. Mailath & R. Rob, 1999. "Learning, Mutation and Long Run Equilibria in Games," Levine's Working Paper Archive 500, David K. Levine.
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  7. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  8. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  9. D. Foster & P. Young, 2010. "Stochastic Evolutionary Game Dynamics," Levine's Working Paper Archive 493, David K. Levine.
  10. Sergiu Hart, 1999. "Evolutionary Dynamics and Backward Induction," Game Theory and Information 9905002, EconWPA, revised 23 Mar 2000.
  11. Atila Abdulkadiroglu & Tayfun Sonmez, 1998. "Random Serial Dictatorship and the Core from Random Endowments in House Allocation Problems," Econometrica, Econometric Society, vol. 66(3), pages 689-702, May.
  12. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  13. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
  14. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
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  16. Goldman, Steven M & Starr, Ross M, 1982. "Pairwise, t-Wise, and Pareto Optimalities," Econometrica, Econometric Society, vol. 50(3), pages 593-606, May.
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Citations

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Cited by:
  1. Christos Ioannou, 2014. "Coevolution of finite automata with errors," Journal of Evolutionary Economics, Springer, vol. 24(3), pages 541-571, July.
  2. Roberto Serrano & Roland Pongou, 2009. "A Dynamic Theory Of Fidelity Networks With An Application To The Spread Of Hiv/Aids," Working Papers wp2009_0909, CEMFI.
  3. Roberto Serrano & Oscar Volij, 2003. "Mistakes in Cooperation: the Stochastic Stability of Edgeworth's Recontracting," Economics Working Papers 0029, Institute for Advanced Study, School of Social Science.
  4. Michihiro Kandori & Roberto Serrano & Oscar Volij, 2004. "Decentralized Trade, Random Utility and the Evolution of Social Welfare," CIRJE F-Series CIRJE-F-286, CIRJE, Faculty of Economics, University of Tokyo.
  5. Chongmin Kim & Kam-Chau Wong, 2011. "Evolution of Walrasian equilibrium in an exchange economy," Journal of Evolutionary Economics, Springer, vol. 21(4), pages 619-647, October.
  6. Oscar Volij, 1999. "In Defense or Defect or Cooperation Does not Justify the Solution Concept," Working Papers 99-26, Brown University, Department of Economics.
  7. Boncinelli, Leonardo & Pin, Paolo, 2012. "Stochastic stability in best shot network games," Games and Economic Behavior, Elsevier, vol. 75(2), pages 538-554.
  8. Ghosal, Sayantan & Porter, James, 2013. "Decentralised exchange, out-of-equilibrium dynamics and convergence to efficiency," Mathematical Social Sciences, Elsevier, vol. 66(1), pages 1-21.
  9. Leonardo Boncinelli, 2007. "Global vs. Local Information," Department of Economics University of Siena 520, Department of Economics, University of Siena.
  10. Kevin Hasker, 2014. "The Emergent Seed: A Representation Theorem for Models of Stochastic Evolution and two formulas for Waiting Time," Levine's Working Paper Archive 786969000000000954, David K. Levine.

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