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Minority Games, Local Interactions, and Endogenous Networks

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  • Giorgio Fagiolo
  • Marco Valente

Abstract

In this paper we study a local version of the Minority Game where agents are placed on the nodes of a directed graph. Agents care about being in the minority of the group of agents they are currently linked to and employ myopic best-reply rules to choose their next-period state. We show that, in this benchmark case, the smaller the size of local networks, the larger long-run population-average payoffs. We then explore the collective behavior of the system when agents can: (i) assign weights to each link they hold and modify them over time in response to payoff signals; (ii) delete badly-performing links (i.e. opponents) and replace them with randomly chosen ones. Simulations suggest that, when agents are allowed to weight links but cannot delete/replace them, the system self-organizes into networked clusters which attain very high payoff values. These clustered configurations are not stable and can be easily disrupted, generating huge subsequent payoff drops. If however agents can (and are sufficiently willing to) discard badly performing connections, the system quickly converges to stable states where all agents get the highest payoff, independently of the size of the networks initially in place.

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Bibliographic Info

Paper provided by Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy in its series LEM Papers Series with number 2004/17.

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Date of creation: 01 Sep 2004
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Handle: RePEc:ssa:lemwps:2004/17

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Keywords: Minority Games; Local Interactions; Endogenous Networks; Adaptive Agents;

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  1. Giorgio Fagiolo & Luigi Marengo & Marco Valente, . "Endogenous Networks in Random Population Games," Modeling, Computing, and Mastering Complexity 2003 05, Society for Computational Economics.
  2. Slanina, František, 2000. "Social organization in the Minority Game model," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 286(1), pages 367-376.
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  12. Arthur, W Brian, 1994. "Inductive Reasoning and Bounded Rationality," American Economic Review, American Economic Association, vol. 84(2), pages 406-11, May.
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  14. Challet, D. & Zhang, Y.-C., 1997. "Emergence of cooperation and organization in an evolutionary game," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 246(3), pages 407-418.
  15. Weisbuch, Gerard & Kirman, Alan & Herreiner, Dorothea, 2000. "Market Organisation and Trading Relationships," Economic Journal, Royal Economic Society, vol. 110(463), pages 411-36, April.
  16. Burgos, E. & Ceva, Horacio & Perazzo, R.P.J., 2004. "The evolutionary minority game with local coordination," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 337(3), pages 635-644.
  17. Page, Scott E, 1997. "On Incentives and Updating in Agent Based Models," Computational Economics, Society for Computational Economics, vol. 10(1), pages 67-87, February.
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