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Loss of Commitment? An Evolutionary Analysis of Bagwell’s Example

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  • Jörg Oechssler
  • Karl H Schlag

Abstract

In a recent paper Bagwell (1995) pointed out that only the Cournot outcome, but not the Stackelberg outcome, can be supported by a pure Nash equilibrium when actions of the Stackelberg leader are observed with the slightest error. The Stackelberg outcome, however, remains close to the outcome of a mixed equilibrium. We compare the predictions in various classes of evolutionary and learning processes in this game. Only the continuous best response dynamic uniquely selects the Stackelberg outcome under noise. All other dynamics analyzed allow for the Cournot equilibrium to be selected. In typical cases Cournot is the unique long run outcome even for vanishing noise in the signal.
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Suggested Citation

  • Jörg Oechssler & Karl H Schlag, 1997. "Loss of Commitment? An Evolutionary Analysis of Bagwell’s Example," Levine's Working Paper Archive 598, David K. Levine.
    • Handle: RePEc:cla:levarc:598
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    References listed on IDEAS

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    12. Schlag, Karl H., 1998. "Why Imitate, and If So, How?, : A Boundedly Rational Approach to Multi-armed Bandits," Journal of Economic Theory, Elsevier, vol. 78(1), pages 130-156, January.
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    Cited by:

    1. Morgan, John & Vardy, Felix, 2007. "The value of commitment in contests and tournaments when observation is costly," Games and Economic Behavior, Elsevier, vol. 60(2), pages 326-338, August.
    2. Huck, Steffen & Muller, Wieland, 2000. "Perfect versus Imperfect Observability--An Experimental Test of Bagwell's Result," Games and Economic Behavior, Elsevier, vol. 31(2), pages 174-190, May.
    3. Giovanni Ponti, 2000. "Splitting The Baby In Two: How To Solve Solomon'S Dilemma When Agents Are Boundedly Rational," Working Papers. Serie AD 2000-08, Instituto Valenciano de Investigaciones Económicas, S.A. (Ivie).

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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games

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