Self-Organized Criticality in a Dynamic Game
AbstractWe investigate conditions under which self-organized criticality (SOC) arises in a version of a dynamic entry game. In the simplest version of the game, there is a single location -- a pool -- and one agent is exogenously dropped into the pool every period. Payoffs to entrants are positive as long as the number of agents in the pool is below a critical level. Exiting results in a permanent payoff of zero. Agents in the pool decide simultaneously each period whether to stay in or not. We characterize the symmetric mixed strategy equilibrium of the resulting dynamic game. We then introduce local interactions between agents that occupy neighboring pools and demonstrate that, under our payoff structure, local interaction effects are necessary and sufficient for SOC and for an associated power law to emerge. Thus, we provide an explicit game-theoretic model of the mechanism through which SOC can arise in a social context with forward looking agents.
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Bibliographic InfoPaper provided by University of Pittsburgh, Department of Economics in its series Working Papers with number 276.
Date of creation: Oct 2006
Date of revision: Aug 2008
Other versions of this item:
- NEP-ALL-2006-10-14 (All new papers)
- NEP-GTH-2006-10-14 (Game Theory)
- NEP-SOC-2006-10-14 (Social Norms & Social Capital)
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