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The Evolution of Exchange

  • Roberto Serrano

    (Department of Economics, Brown University.)

  • Assaf Ben-Shoham

    (Department of Economics, Hebrew University.)

  • Oscar Volij

    (Department of Economics, Brown University, and Department of Economics, Hebrew University of Jerusalem.)

Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set of stochastically stable allocations contains the set of efficient allocations. When more serious mistakes are less likely, the stochastically stable states are those allocations, always efficient, with the lowest envy-level.

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Paper provided by Oscar Volij in its series Economic theory and game theory with number 012.

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Date of creation: 25 May 2000
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Publication status: Published in Journal of Economic Theory, 114, (2004), 310-328.
Handle: RePEc:nid:ovolij:012
Contact details of provider: Postal: Oscar Volij, Department of Economics, Ben-Gurion University, Beer-Sheva 84105, Israel
Web page: http://volij.co.il/

Order Information: Web: http://volij.co.il/addr.html

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  1. Bergin, James & Lipman, Barton L, 1996. "Evolution with State-Dependent Mutations," Econometrica, Econometric Society, vol. 64(4), pages 943-56, July.
  2. 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.
  3. Noldeke Georg & Samuelson Larry, 1993. "An Evolutionary Analysis of Backward and Forward Induction," Games and Economic Behavior, Elsevier, vol. 5(3), pages 425-454, July.
  4. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  5. Feldman, Allan M, 1973. "Bilateral Trading, Processes, Pairwise Optimality, and Pareto Optimality," Review of Economic Studies, Wiley Blackwell, vol. 40(4), pages 463-73, October.
  6. D. Foster & P. Young, 2010. "Stochastic Evolutionary Game Dynamics," Levine's Working Paper Archive 493, David K. Levine.
  7. Shapley, Lloyd & Scarf, Herbert, 1974. "On cores and indivisibility," Journal of Mathematical Economics, Elsevier, vol. 1(1), pages 23-37, March.
  8. Jackson, Matthew O. & Watts, Alison, 2002. "On the formation of interaction networks in social coordination games," Games and Economic Behavior, Elsevier, vol. 41(2), pages 265-291, November.
  9. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  10. Sergiu Hart, 1999. "Evolutionary Dynamics and Backward Induction," Game Theory and Information 9905002, EconWPA, revised 23 Mar 2000.
  11. Bogomolnaia, Anna & Moulin, Herve, 2001. "A New Solution to the Random Assignment Problem," Journal of Economic Theory, Elsevier, vol. 100(2), pages 295-328, October.
  12. Goldman, Steven M & Starr, Ross M, 1982. "Pairwise, t-Wise, and Pareto Optimalities," Econometrica, Econometric Society, vol. 50(3), pages 593-606, May.
  13. Glen Ellison, 2010. "Learning, Local Interaction, and Coordination," Levine's Working Paper Archive 391, David K. Levine.
  14. Atila Abdulkadiroglu & Tayfun Sonmez, 1998. "Random Serial Dictatorship and the Core from Random Endowments in House Allocation Problems," Econometrica, Econometric Society, vol. 66(3), pages 689-702, May.
  15. P. Young, 1999. "The Evolution of Conventions," Levine's Working Paper Archive 485, David K. Levine.
  16. Young H. P., 1993. "An Evolutionary Model of Bargaining," Journal of Economic Theory, Elsevier, vol. 59(1), pages 145-168, February.
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