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Expectations, Drift, and Volatility in Evolutionary Games

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  • Vega-Redondo Fernando

Abstract

This paper introduces expectations into the framework of evolutionary games. On the one hand, (myopic) players are assumed to behave optimally according to the expectations they hold at each point of the process. On the other hand, expectations themselves are continuously updated according to the players' latest experience. The possibility of random drift on expectations (i.e., arbitrary variation on them not opposed by selection forces) produces sharp volatility across equilibria. Specifically, all Nash equilibria (but only these) have positive weight in the limit stationary distribution, independently of risk -or payoff-dominance considerations.
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Suggested Citation

  • Vega-Redondo Fernando, 1995. "Expectations, Drift, and Volatility in Evolutionary Games," Games and Economic Behavior, Elsevier, vol. 11(2), pages 391-412, November.
  • Handle: RePEc:eee:gamebe:v:11:y:1995:i:2:p:391-412
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    Cited by:

    1. Dawid, Herbert, 1997. "Learning of equilibria by a population with minimal information," Journal of Economic Behavior & Organization, Elsevier, vol. 32(1), pages 1-18, January.
    2. Dieckmann, Tone, 1999. "The evolution of conventions with mobile players," Journal of Economic Behavior & Organization, Elsevier, vol. 38(1), pages 93-111, January.
    3. Dawid, Herbert, 2000. "On the emergence of exchange and mediation in a production economy," Journal of Economic Behavior & Organization, Elsevier, vol. 41(1), pages 27-53, January.
    4. Weibull, Jörgen W., 1997. "What have we learned from Evolutionary Game Theory so far?," Working Paper Series 487, Research Institute of Industrial Economics, revised 26 Oct 1998.
    5. Tone Dieckmann, 1997. "The Evolution of conventions with Mobile Players," Economics, Finance and Accounting Department Working Paper Series n720897, Department of Economics, Finance and Accounting, National University of Ireland - Maynooth.
    6. Susan Lee, 1999. "Assortative Interactions and Endogenous Stratification," Working Papers 99-08-056, Santa Fe Institute.
    7. Dawid, Herbert, 1999. "On the convergence of genetic learning in a double auction market," Journal of Economic Dynamics and Control, Elsevier, vol. 23(9-10), pages 1545-1567, September.
    8. Tone Dieckmann, 1998. "Stochastic Learning and the Evolution of Conventions," Constitutional Political Economy, Springer, vol. 9(3), pages 187-212, September.

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