Tempered Best Response Dynamics
AbstractWe propose a new deterministic evolutionary dynamicâ€”the tempered best response dynamic (tBRD)---to capture two features of economic decision making: optimization and continuous sensitivity to incentives. That is, in the tBRD, an agent is more likely to revise his action when his current payoff is further from the optimal payoff, and he always switches to an optimal action when revising. The tBRD is a payoff monotone selection like the replicator dynamic, which makes medium and long-run outcomes more consistent with predictions from equilibrium refinement than the BRD in some situations. The technical contribution of the tBRD is continuous sensitivity, which allows us to apply results of a system of piecewise differential equations in order to obtain conditions for uniqueness and stability of solutions.
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Bibliographic InfoPaper provided by Department of Economics, Temple University in its series DETU Working Papers with number 1301.
Date of creation: Jan 2013
Date of revision:
best response dynamic; payoff monotonicity; status-quo bias; switching costs; proper equilibrium; piecewise differential equations;
Find related papers by JEL classification:
- C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
- C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
- D03 - Microeconomics - - General - - - Behavioral Microeconomics; Underlying Principles
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-03-30 (All new papers)
- NEP-EVO-2013-03-30 (Evolutionary Economics)
- NEP-MIC-2013-03-30 (Microeconomics)
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