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Coordination under global random interaction and local imitation

  • Khan A.


We study stochastically stable behaviour in 2 x 2 coordination games where the risk-dominant equilibrium differs from the Pareto-efficient equilibrium. Individuals are randomly matched to another individual in the population with full support and they choose strategies by imitating the most successful individual they observe. So, while individuals interact globally, their observation, as determined by their social network, may be local. In the benchmark model, all individuals observe each other, and hence, an individual imitates the strategy of the most successful individual in the entire population; here, the stochastically stable outcome corresponds to the situation where everyone coordinates on the Pareto-efficient equilibrium. While this outcome is always stochastically stable even when observability is incomplete, the state where everyone plays the action of the risk-dominant equilibrium may be stochastically stable as well. Reasonably tight sufficient conditions for unique stochastic stability of the state where all individuals play the Pareto-efficient equilibrium strategy include each individual observing at least four other individuals or when each individual observes the same number of other individuals.

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Paper provided by Maastricht University, Graduate School of Business and Economics (GSBE) in its series Research Memorandum with number 004.

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Date of creation: 2013
Date of revision:
Handle: RePEc:unm:umagsb:2013004
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  1. Jose Apesteguia & Steffen Huck & Jörg Oechssler, 2003. "Imitation - Theory and Experimental Evidence," Bonn Econ Discussion Papers bgse20_2003, University of Bonn, Germany, revised Aug 2004.
  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. Banerjee, Abhijit & Fudenberg, Drew, 2004. "Word-of-mouth learning," Games and Economic Behavior, Elsevier, vol. 46(1), pages 1-22, January.
  4. Ellison, Glenn & Fudenberg, Drew, 1993. "Rules of Thumb for Social Learning," Scholarly Articles 3196332, Harvard University Department of Economics.
  5. Simon Weidenholzer, 2010. "Coordination Games and Local Interactions: A Survey of the Game Theoretic Literature," Games, MDPI, Open Access Journal, vol. 1(4), pages 551-585, November.
  6. Glenn Ellison & Drew Fudenberg, 1995. "Word-of-Mouth Communication and Social Learning," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 93-125.
  7. Mengel, Friederike, 2007. "Conformism and Cooperation in a Local Interaction Model," MPRA Paper 4051, University Library of Munich, Germany.
  8. Fudenberg, Drew & Ellison, Glenn, 1995. "Word-of-Mouth Communication and Social Learning," Scholarly Articles 3196300, Harvard University Department of Economics.
  9. Robson, Arthur J. & Vega-Redondo, Fernando, 1996. "Efficient Equilibrium Selection in Evolutionary Games with Random Matching," Journal of Economic Theory, Elsevier, vol. 70(1), pages 65-92, July.
  10. Hedlund Jonas, 2012. "Altruism and Local Interaction," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 12(1), pages 1-27, June.
  11. Alós-Ferrer, Carlos & Weidenholzer, Simon, 2008. "Contagion and efficiency," Journal of Economic Theory, Elsevier, vol. 143(1), pages 251-274, November.
  12. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  13. Alos-Ferrer, Carlos & Weidenholzer, Simon, 2006. "Imitation, local interactions, and efficiency," Economics Letters, Elsevier, vol. 93(2), pages 163-168, November.
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