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Evolution and Walrasian Behavior in Market Games

Author

Listed:
  • Alexander Matros

    (University of Pittsburgh)

  • Ted Temzelides

    (University of Pittsburgh)

Abstract

We revisit the question of price formation in general equilibrium theory. We explore whether evolutionary forces lead to Walrasian equilibrium in the context of a market game, introduced by Shubik (1972). Market games have Pareto inferior (strict) Nash equilibria, in which some, and possibly all, markets are closed. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against multiple, simultaneous mutations. We show that the introduction of a small number of ``trading mutants'' is sufficient for Pareto improving trade to be generated. Provided that agents lack market power, Nash equilibria corresponding to approximate Walrasian equilibria constitute the only approximate SESS.

Suggested Citation

  • Alexander Matros & Ted Temzelides, 2004. "Evolution and Walrasian Behavior in Market Games," Game Theory and Information 0409009, University Library of Munich, Germany.
  • Handle: RePEc:wpa:wuwpga:0409009
    Note: Type of Document - pdf; pages: 17
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/game/papers/0409/0409009.pdf
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    References listed on IDEAS

    as
    1. Martin Shubik, 1977. "A Theory of Money and Financial Institutions," Cowles Foundation Discussion Papers 462, Cowles Foundation for Research in Economics, Yale University.
    2. Dubey, Pradeep & Shubik, Martin, 1977. "A closed economic system with production and exchange modelled as a game of strategy," Journal of Mathematical Economics, Elsevier, vol. 4(3), pages 253-287, December.
    3. Postlewaite, A & Schmeidler, David, 1978. "Approximate Efficiency of Non-Walrasian Nash Equilibria," Econometrica, Econometric Society, vol. 46(1), pages 127-135, January.
    4. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
    5. Shapley, Lloyd S & Shubik, Martin, 1977. "Trade Using One Commodity as a Means of Payment," Journal of Political Economy, University of Chicago Press, vol. 85(5), pages 937-968, October.
    6. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215.
    7. Dubey, Pradeep & Shubik, Martin, 1978. "A theory of money and financial institutions. 28. The non-cooperative equilibria of a closed trading economy with market supply and bidding strategies," Journal of Economic Theory, Elsevier, vol. 17(1), pages 1-20, February.
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    Cited by:

    1. Régis Breton & Bertrand Gobillard, 2005. "Robustness of equilibrium price dispersion in finite market games," Post-Print halshs-00257207, HAL.

    More about this item

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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