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Evolutionary Stability in a Reputational Model of Bargaining

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  • Dilip Abreu

    (Princeton University)

  • Rajiv Sethi

    (Barnard College, Columbia University)

Abstract

A large and growing literature on reputation in games builds on the insight that the possibility of one or more players being other than fully rational can have significant effects on equilibrium behavior. This literature leaves unexplained the presence of behavioral players in the first place, and the particular forms of irrationality assumed. In this paper we endogenize departures from rationality on the basis of an evolutionary stability criterion, under the assumption that rational players incur a cost which reflects the greater sophistication of their behavior. This cost may be arbitrarily small. Within the context of a reputational model of bargaining, we show that evolutionary stability necessitates the presence of behavioral players, and places significant restrictions on the set of behavioral types that can coexist. It is consistent, however, with a broad variety of outcomes ranging from immediate agreement to complete surplus dissipation. The long run population share of behavioral types is greatest at states in which surplus dissipation is either negligible or almost complete.

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File URL: http://128.118.178.162/eps/game/papers/0103/0103001.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Game Theory and Information with number 0103001.

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Length: 29 pages
Date of creation: 28 Mar 2001
Date of revision:
Handle: RePEc:wpa:wuwpga:0103001

Note: Type of Document - Tex; prepared on IBM PC ; to print on HP/PostScript; pages: 29 ; figures: included
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Web page: http://128.118.178.162

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Keywords: Reputation; Evolutionary Stability; Bargaining;

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References

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  1. Paul Milgrom & John Roberts, 1980. "Predation, Reputation, and Entry Deterrence," Discussion Papers 427, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  2. Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 275-293, September.
  3. McKelvey, Richard D & Palfrey, Thomas R, 1992. "An Experimental Study of the Centipede Game," Econometrica, Econometric Society, vol. 60(4), pages 803-36, July.
  4. Chatterjee, Kalyan & Samuelson, Larry, 1987. "Bargaining with Two-Sided Incomplete Information: An Infinite Horizon Model with Alternating Offers," Review of Economic Studies, Wiley Blackwell, vol. 54(2), pages 175-92, April.
  5. D. Stahl, 2010. "Evolution of Smart n Players," Levine's Working Paper Archive 401, David K. Levine.
  6. Dekel, Eddie & Scotchmer, Suzanne, 1992. "On the evolution of optimizing behavior," Journal of Economic Theory, Elsevier, vol. 57(2), pages 392-406, August.
  7. Kreps, David M. & Milgrom, Paul & Roberts, John & Wilson, Robert, 1982. "Rational cooperation in the finitely repeated prisoners' dilemma," Journal of Economic Theory, Elsevier, vol. 27(2), pages 245-252, August.
  8. Simon, Herbert A, 1978. "Rationality as Process and as Product of Thought," American Economic Review, American Economic Association, vol. 68(2), pages 1-16, May.
  9. Karl H. Schlag & Dieter Balkenborg, 2001. "Evolutionarily stable sets," International Journal of Game Theory, Springer, vol. 29(4), pages 571-595.
  10. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
  11. Dilip Abreu & Faruk Gul, 2000. "Bargaining and Reputation," Econometrica, Econometric Society, vol. 68(1), pages 85-118, January.
  12. David Kreps & Robert Wilson, 1999. "Reputation and Imperfect Information," Levine's Working Paper Archive 238, David K. Levine.
  13. Guttman, Joel M., 1996. "Rational actors, tit-for-tat types, and the evolution of cooperation," Journal of Economic Behavior & Organization, Elsevier, vol. 29(1), pages 27-56, January.
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Cited by:
  1. Thierry Vignolo, 2007. "Imitation and Selective Matching in Reputational Games," Economics Working Papers ECO2007/31, European University Institute.
  2. Kai A. Konrad & Florian Morath, 2011. "Evolutionarily stable in-group favoritism and out-group spite in intergroup conflict," Working Papers evolutionarily_stable, Max Planck Institute for Tax Law and Public Finance.
  3. Friedman, Daniel & Singh, Nirvikar, 2009. "Equilibrium vengeance," Games and Economic Behavior, Elsevier, vol. 66(2), pages 813-829, July.
  4. Takako Fujiwara-Greve & Masahiro Okuno-Fujiwara, 2008. "Voluntarily Separable Repeated Prisoner's Dilemma," CIRJE F-Series CIRJE-F-599, CIRJE, Faculty of Economics, University of Tokyo.
  5. Crawford, Vincent P., 2001. "Lying for Strategic Advantage: Rational and Boundedly Rational Misrepresentation of Intentions," University of California at San Diego, Economics Working Paper Series qt6k65014s, Department of Economics, UC San Diego.
  6. Jack Robles, 2008. "Evolution, bargaining, and time preferences," Economic Theory, Springer, vol. 35(1), pages 19-36, April.

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