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Evolution and Walrasian Behavior in Market Games

Listed author(s):
  • Alexander Matros

    (University of Pittsburgh)

  • Ted Temzelides

    (University of Pittsburgh)

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.

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File URL: http://econwpa.repec.org/eps/game/papers/0409/0409009.pdf
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Paper provided by EconWPA in its series Game Theory and Information with number 0409009.

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Length: 17 pages
Date of creation: 21 Sep 2004
Handle: RePEc:wpa:wuwpga:0409009
Note: Type of Document - pdf; pages: 17
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Postlewaite, A & Schmeidler, David, 1978. "Approximate Efficiency of Non-Walrasian Nash Equilibria," Econometrica, Econometric Society, vol. 46(1), pages 127-135, January.
  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. Jorgen W. Weibull, 1997. "Evolutionary Game Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262731215, July.
  4. Martin Shubik, 1977. "A Theory of Money and Financial Institutions," Cowles Foundation Discussion Papers 462, Cowles Foundation for Research in Economics, Yale University.
  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. Fernando Vega-Redondo, 1997. "The Evolution of Walrasian Behavior," Econometrica, Econometric Society, vol. 65(2), pages 375-384, March.
  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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