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Long-run efficiency with local interactions and heterogeneous types

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  • Lillethun, Erik

Abstract

In evolutionary game theory, when a population of players with the same preferences may freely choose a location in which to interact with other players, previous literature has shown that long-run evolutionary forces select in favor of payoff-dominant equilibria. In this paper, I extend this location choice aspect of evolutionary game theory to the case of two different payoff types of players in 2 × 2 games. I show that whether or not payoff-dominant equilibrium selection occurs depends on the precise interaction of types, especially whether they exhibit mutual strategic homophily or a mix of homophily and heterophily. The former case guarantees payoff-dominant equilibria, and the latter case may not, because coordination becomes imperfect and may settle on an inefficient strategy.

Suggested Citation

  • Lillethun, Erik, 2026. "Long-run efficiency with local interactions and heterogeneous types," Games and Economic Behavior, Elsevier, vol. 159(C), pages 156-178.
    • Handle: RePEc:eee:gamebe:v:159:y:2026:i:c:p:156-178
    DOI: 10.1016/j.geb.2026.06.009
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    JEL classification:

    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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