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The Evolution of Coordination under Inertia

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  • Thomas Norman

Abstract

This paper models the phenomenon of inertia driven by individual strategy switching costs in a stochastic evolutionary context. Kandori, Mailath, and Rob`s (1993) model of a finite population of agents repeatedly playing a 2x2 symmetric coordination game is extended to allow for such inertia. Taking noise to the limit, a number of new short- to medium-run equilibria emerge, centred around the mixed-strategy equilibrium. Thus, unusually, an evolutionary model is seen to provide some justification for the controversial concept of mixed-strategy equilibrium. However, Kandori, Mailath, and Rob`s long-run selection of the risk-dominant equilibrium continues to hold, both under fixed-rate mutations and under state-dependent mutations driven by stochastic switching costs. The key to this is the satisfaction of Blume`s (1999) skew-symmetry of the noise process, which is shown to be crucial even under simultaneous strategy revisions. In fact, the presence of the new short-run equilibria can under certain conditions serve to reduce the expected waiting time before the risk-dominant equilibrium is reached - an instance of Ellison`s (2000) idea that evolution is more rapid when it can proceed via a series of small steps between extremes. This suggests inertia to be a surprisingly efficient phenomenon, and also serves to moderate the force of the Ellison (1993) critique of excessively long transition times in models with vanishing noise.

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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2003-W06.

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Date of creation: 01 Jan 2003
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Handle: RePEc:oxf:wpaper:2003-w06

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  1. Lee In Ho & Szeidl Adam & Valentinyi Akos, 2003. "Contagion and State Dependent Mutations," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-29, February.
  2. Thomas Norman, 2003. "The Evolution of Conflict under Inertia," Economics Papers 2003-W07, Economics Group, Nuffield College, University of Oxford.
  3. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
  4. Glen Ellison, 2010. "Learning from Personal Experience: One Rational Guy and the Justification of Myopia," Levine's Working Paper Archive 413, David K. Levine.
  5. David P. Myatt & Chris Wallace, 2002. "Adaptive Play by Idiosyncratic Agents," Economics Series Working Papers 89, University of Oxford, Department of Economics.
  6. Barton L. Lipman & Ruqu Wang, 1997. "Switching Costs in Frequently Repeated Games," Discussion Papers 1190, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. repec:fth:iniesr:501 is not listed on IDEAS
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Cited by:
  1. Thomas Norman, 2003. "The Evolution of Conflict under Inertia," Economics Series Working Papers 2003-W07, University of Oxford, Department of Economics.
  2. Thomas Norman, . "Step-by-Step Evolution with State-Dependent Mutations," Economics Papers 2003-W08, Economics Group, Nuffield College, University of Oxford.
  3. Tom Quilter, 2007. "Noise Matters in Heterogeneous Populations," ESE Discussion Papers 169, Edinburgh School of Economics, University of Edinburgh.

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