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On payoff heterogeneity in games with strategic complementarities

  • Antonio Ciccone
  • James Costain

Recent papers involving binary choices have argued that increasing heterogeneity decreases positive feedback. We show that no such result holds in models where all agents make interior choices. The results in the binary choice case arise for two reasons. First, if we increase heterogeneity without limit but impose a bounded choice set, then almost all players eventually become completely unresponsive, preferring some corner so strongly that they do not react to any feasible change in the behavior of others. Second, discrete choice permits the construction of strong, but fragile, positive feedbacks through composition effects. Copyright 2004, Oxford University Press.

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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 56 (2004)
Issue (Month): 4 (October)
Pages: 701-713

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Handle: RePEc:oup:oxecpp:v:56:y:2004:i:4:p:701-713
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  1. Rothschild, Michael & Stiglitz, Joseph E., 1970. "Increasing risk: I. A definition," Journal of Economic Theory, Elsevier, vol. 2(3), pages 225-243, September.
  2. repec:oup:qjecon:v:114:y:1999:i:3:p:869-905 is not listed on IDEAS
  3. Morris, Stephen & Shin, Hyun Song, 1998. "Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks," American Economic Review, American Economic Association, vol. 88(3), pages 587-97, June.
  4. repec:oup:qjecon:v:103:y:1988:i:3:p:441-63 is not listed on IDEAS
  5. Schmutzler, Armin, 1998. "Changing places--the role of heterogeneity and externalities in cumulative processes," International Journal of Industrial Organization, Elsevier, vol. 16(4), pages 445-461, July.
  6. Caballero, Ricardo J, 1992. "A Fallacy of Composition," American Economic Review, American Economic Association, vol. 82(5), pages 1279-92, December.
  7. repec:oup:restud:v:67:y:2000:i:2:p:295-307 is not listed on IDEAS
  8. Kneip, Alois, 1999. "Behavioral heterogeneity and structural properties of aggregate demand," Journal of Mathematical Economics, Elsevier, vol. 31(1), pages 49-79, February.
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