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The Evolution of Coordination under Inertia

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Abstract

This paper models the phenomenon of inertia driven by individual strategy switching costs in a stochastic evolutionary context. Kandori, Mailath, and Rob's (1993) model of a finite population of agents repeatedly playing a 2x2 symmetric coordination game is extended to allow for such inertia. Taking noise to the limit, a number of new short- to medium-run equilibria emerge, centred around the mixed-strategy equilibrium. Thus, unusually, an evolutionary model is seen to provide some justification for the controversial concept of mixed-strategy equilibrium. However, Kandori, Mailath, and Rob's long-run selection of the risk-dominant equilibrium continues to hold, both under fixed-rate mutations and under state-dependent mutations driven by stochastic switching costs. The key to this is the satisfaction of Blume's (1999) "skew-symmetry" of the noise process, which is shown to be crucial even under simultaneous strategy revisions. In fact, the presence of the new short-run equilibria can under certain conditions serve to reduce the expected waiting time before the risk-dominant equilibrium is reached - an instance of Ellison's (2000) idea that evolution is more rapid when it can proceed via a series of small "steps" between extremes. This suggests inertia to be a surprisingly efficient phenomenon, and also serves to moderate the force of the Ellison (1993) critique of excessively long transition times in models with vanishing noise.

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  • Thomas Norman, 2003. "The Evolution of Coordination under Inertia," Economics Papers 2003-W06, Economics Group, Nuffield College, University of Oxford.
  • Handle: RePEc:nuf:econwp:0306
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    File URL: http://www.nuff.ox.ac.uk/economics/papers/2003/W6/SpeedEctConf.pdf
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    1. Paul Klemperer, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 375-394.
    2. Ellison, Glenn, 1997. "Learning from Personal Experience: One Rational Guy and the Justification of Myopia," Games and Economic Behavior, Elsevier, vol. 19(2), pages 180-210, May.
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    Cited by:

    1. Tom Quilter, 2007. "Noise Matters in Heterogeneous Populations," ESE Discussion Papers 169, Edinburgh School of Economics, University of Edinburgh.
    2. Thomas Norman, "undated". "Step-by-Step Evolution with State-Dependent Mutations," Economics Papers 2003-W08, Economics Group, Nuffield College, University of Oxford.

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