Noise Matters in Heterogeneous Populations
The concept of boundedly rational agents in evolutionary game theory has succeeded in producing clear results when traditional methodology was failing. However the majority of such papers have obtained their results when this bounded rationality itself vanishes. This paper considers whether such results are actually a good reflection of a population whose bounded rationality is small, but non-vanishing. We also look at a heterogeneous population who play a co-ordination game but have conflicting interests, and investigate the stability of an equilibria where two strategies co-exist together. Firstly, I find that results using the standard vanishing noise approach can be very different from those obtained when noise is small but persistent. Secondly, when the results differ it is the non-vanishing noise approach which selects the co-existence equilibria. As recent economic and psychology studies highlight the irrationality of their human subjects, this paper seeks to further demonstrate that the literature needs to concentrate more on the analysis of truly noisy populations.
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- Thomas Norman, 2003. "The Evolution of Coordination under Inertia," Economics Papers 2003-W06, Economics Group, Nuffield College, University of Oxford. Full references (including those not matched with items on IDEAS)
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