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The Evolution of Conventions under Incomplete Information

In: Institutions, Equilibria and Efficiency

Author

Listed:
  • Mogens Jensen

    (DONG A/S)

  • Birgitte Sloth

    (University of Southern Denmark)

  • Hans Jøgen Whitta-Jacobsen

    (University of Copenhagen)

Abstract

Summary We formulate an evolutionary learning process with trembles for static games of incomplete information. For many games, if the amount of trembling is small, play will be in accordance with the games’ (strict) Bayesian equilibria most of the time supporting the notion of Bayesian equilibrium. Often the process will select a specific equilibrium. For two specific games of economic interest we characterize this selection. The first is an extension to incomplete information of the prototype strategic conflict known as “Chicken”. The second is an incomplete information bilateral monopoly, which is also an extension to incomplete information of Nash’s demand game, or a simple version of the so-called sealed bid double auction. The examples reveal that equilibrium selection by evolutionary learning may well be in favor of Bayesian equilibria where some types of players fail to coordinate, so that the equilibrium outcomes are inefficient.

Suggested Citation

  • Mogens Jensen & Birgitte Sloth & Hans Jøgen Whitta-Jacobsen, 2006. "The Evolution of Conventions under Incomplete Information," Studies in Economic Theory, in: Christian Schultz & Karl Vind (ed.), Institutions, Equilibria and Efficiency, chapter 15, pages 273-293, Springer.
    • Handle: RePEc:spr:steccp:978-3-540-28161-0_15
    DOI: 10.1007/3-540-28161-4_15
    as

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