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The Evolution of Coordination under Inertia

  • Thomas Norman

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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File URL: http://www.nuff.ox.ac.uk/economics/papers/2003/W6/SpeedEctConf.pdf
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Paper provided by University of Oxford, Department of Economics in its series Economics Series Working Papers with number 2003-W06.

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Date of creation: 01 Jan 2003
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Handle: RePEc:oxf:wpaper:2003-w06
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  1. Myatt, David P. & Wallace, Chris C., 2004. "Adaptive play by idiosyncratic agents," Games and Economic Behavior, Elsevier, vol. 48(1), pages 124-138, July.
  2. Barton L. Lipman & Ruqu Wang, 1997. "Switching Costs in Frequently Repeated Games," Discussion Papers 1190, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Thomas Norman, 2003. "The Evolution of Conflict under Inertia," Economics Series Working Papers 2003-W07, University of Oxford, Department of Economics.
  4. Lee In Ho & Szeidl Adam & Valentinyi Akos, 2003. "Contagion and State Dependent Mutations," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 3(1), pages 1-29, February.
  5. 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.
  6. Weibull, J├Ârgen W. & van Damme, Eric, 1998. "Evolution with Mutations Driven by Control Costs," Working Paper Series 501, Research Institute of Industrial Economics.
  7. Klemperer, Paul, 1987. "Markets with Consumer Switching Costs," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 375-94, May.
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