Imitators and Optimizers in a Changing Environment
We analyze the dynamic interaction between imitation and myopic optimization in an environment of changing marginal payoffs. Focusing on finite irreducible environments, we unfold a trade-off between the degree of interaction and the size of environmental shocks. The optimizer outperforms the imitator if interaction is weak or if shocks are large. We use the example of Cournot duopoly to give economic meaning to this condition. To establish our main result, we rely on continuous state space Markov theory. In particular, it turns out that introducing a stochastic environment with finitely many states suffices to make an otherwise deterministic process ergodic.
|Date of creation:||21 Jun 2003|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.uib.no/econ/en
More information through EDIRC
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Gale, D. & Rosental, R.W., 1996.
"Experimentation, Imitation, and Stochastic Stability,"
65, Boston University - Industry Studies Programme.
- Gale, Douglas & Rosenthal, Robert W., 1999. "Experimentation, Imitation, and Stochastic Stability," Journal of Economic Theory, Elsevier, vol. 84(1), pages 1-40, January.
- Douglas Gale & Robert W. Rosenthal, 1996. "Experimentation, Imitation, and Stochastic Stability," Papers 0065, Boston University - Industry Studies Programme.
- Schenk-Hoppe, Klaus Reiner, 2000. "The evolution of Walrasian behavior in oligopolies," Journal of Mathematical Economics, Elsevier, vol. 33(1), pages 35-55, February.
- Fernando Vega-Redondo, 1997.
"The Evolution of Walrasian Behavior,"
Econometric Society, vol. 65(2), pages 375-384, March.
- M. Kandori & G. Mailath & R. Rob, 1999.
"Learning, Mutation and Long Run Equilibria in Games,"
Levine's Working Paper Archive
500, David K. Levine.
- Kandori, Michihiro & Mailath, George J & Rob, Rafael, 1993. "Learning, Mutation, and Long Run Equilibria in Games," Econometrica, Econometric Society, vol. 61(1), pages 29-56, January.
- Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers 71, Princeton, Woodrow Wilson School - John M. Olin Program.
- Droste, Edward & Hommes, Cars & Tuinstra, Jan, 2002.
"Endogenous fluctuations under evolutionary pressure in Cournot competition,"
Games and Economic Behavior,
Elsevier, vol. 40(2), pages 232-269, August.
- Droste, E. & Hommes, C.H. & Tuinstra, J., 1999. "Endogenous Fluctuations under Evolutionary Pressure in Cournot Competition," CeNDEF Working Papers 99-04, Universiteit van Amsterdam, Center for Nonlinear Dynamics in Economics and Finance.
- Gale, Douglas & Rosenthal, Robert W., 2001. "Experimentation, Imitation, and Stochastic Stability: Addendum," Journal of Economic Theory, Elsevier, vol. 97(1), pages 164-174, March.
- Conlisk, John, 1980. "Costly optimizers versus cheap imitators," Journal of Economic Behavior & Organization, Elsevier, vol. 1(3), pages 275-293, September.
- Rhode, Paul & Stegeman, Mark, 2001. "Non-Nash equilibria of Darwinian dynamics with applications to duopoly," International Journal of Industrial Organization, Elsevier, vol. 19(3-4), pages 415-453, March.
When requesting a correction, please mention this item's handle: RePEc:hhs:bergec:2003_003. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Kjell Erik Lommerud)
If references are entirely missing, you can add them using this form.