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Gale-Shapley Matching in an Evolutionary Trade Network Game

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  • Leigh Tesfatsion

    (Iowa State University)

Abstract

This study investigates the performance of Gale-Shapley matching in an evolutionary market context. Computational experimental findings are reported for an evolutionary match-and-play trade network game in which resource-constrained traders repeatedly choose and refuse trade partners in accordance with Gale-Shapley matching, participate in risky trades modelled as two-person prisoner's dilemma games, and evolve their trade strategies over time. Particular attention is focused on correlations between ex ante market structure and the formation of trade networks, and between trade network formation and the types of trade behavior and social welfare outcomes that these trade networks support. The main conclusion drawn from this study is that the optimality criteria conventionally used to evaluate the performance of matching mechanisms in static market contexts -- namely, core stability and Pareto optimality -- are highly incomplete indicators of performance from an evolutionary vantage point. The static viewpoint hides the strong role played by market structure and ex ante capacity constraints in determining the types of persistent matching networks that evolve, the types of persistent interaction behaviors that these networks support, and the transactions costs and inactivity costs to agents that the achievement of these persistent networks and behaviors entails. In addition, the static viewpoint takes preference rankings over potential partners as given whereas these rankings are continuously updated on the basis of past interactions in evolutionary settings. Indeed, matching behaviors and interaction behaviors evolve conjointly. This suggests the need for more comprehensive optimality criteria that take both facets into account.

Suggested Citation

  • Leigh Tesfatsion, 1998. "Gale-Shapley Matching in an Evolutionary Trade Network Game," Game Theory and Information 9805004, EconWPA, revised 26 Jul 1998.
  • Handle: RePEc:wpa:wuwpga:9805004 Note: Type of Document - Postscript ; prepared on PC-LaTeX; to print on Postscript; pages: 40 ; figures: Included. Prepared from dvips.
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    References listed on IDEAS

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    1. McFadzean, David & Tesfatsion, Leigh, 1999. "A C++ Platform for the Evolution of Trade Networks," Computational Economics, Springer;Society for Computational Economics, vol. 14(1-2), pages 109-134, October.
    2. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-1071, September.
    3. Roth,Alvin E. & Sotomayor,Marilda A. Oliveira, 1992. "Two-Sided Matching," Cambridge Books, Cambridge University Press, number 9780521437882, December.
    4. Vriend, Nicolaas J, 1995. "Self-Organization of Markets: An Example of a Computational Approach," Computational Economics, Springer;Society for Computational Economics, vol. 8(3), pages 205-231, August.
    5. Gerard Weisbuch & Alan Kirman & Dorothea Herreiner, 1995. "Market Organization," Working Papers 95-11-102, Santa Fe Institute.
    6. Leigh TESFATSION, 1995. "How Economists Can Get Alife," Economic Report 37, Iowa State University Department of Economics.
    7. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," NBER Working Papers 5291, National Bureau of Economic Research, Inc.
    8. Sergei Guriev & Igor Pospelov & Margarita Shakhova, "undated". "Self-Organization of Trade Networks in an Economy with Imperfect Infrastructure," Computing in Economics and Finance 1996 _022, Society for Computational Economics.
    9. Hirshlifer, David & Rassmusen, Eric, 1989. "Cooperation in a repeated prisoners' dilemma with ostracism," Journal of Economic Behavior & Organization, Elsevier, vol. 12(1), pages 87-106, August.
    10. Leigh TESFATSION, 1995. "A Trade Network Game With Endogenous Partner Selection," Economic Report 36, Iowa State University Department of Economics.
    11. Dan Ashlock & Mark D. Smucker & E. Ann Stanley & Leigh Tesfatsion, 1995. "Preferential Partner Selection in an Evolutionary Study of Prisoner's Dilemma," Game Theory and Information 9501002, EconWPA, revised 20 Jan 1995.
    12. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
    13. Stanley, E.A. & Ashlock, Daniel & Tesfatsion, Leigh, 1994. "Iterated Prisoner's Dilemma with Choice and Refusal of Partners," Staff General Research Papers Archive 11180, Iowa State University, Department of Economics.
    14. Esther Hauk, "undated". "Leaving the Prison: A Discussion of the Iterated Prisoner's Dilemma under Preferential Partner Selection," Computing in Economics and Finance 1996 _067, Society for Computational Economics.
    15. Gerard Weisbuch & Alan Kirman & Dorothea Herreiner, 1995. "Market Organization," Working Papers 95-11-102, Santa Fe Institute.
    16. Yannis M. Ioannides, 1996. "Evolution of Trading Structures," Working Papers 96-04-020, Santa Fe Institute.
    17. David Banks & Kathleen Carley, 1994. "Metric inference for social networks," Journal of Classification, Springer;The Classification Society, vol. 11(1), pages 121-149, March.
    18. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
    19. Joshua M. Epstein & Robert L. Axtell, 1996. "Growing Artificial Societies: Social Science from the Bottom Up," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262550253, January.
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    Cited by:

    1. Rodrigo J. Harrison & Roberto Munoz, 2003. "Stability and Equilibrium Selection in a Link Formation Game," Game Theory and Information 0306004, EconWPA.
    2. Bloch, Francis & Genicot, Garance & Ray, Debraj, 2008. "Informal insurance in social networks," Journal of Economic Theory, Elsevier, vol. 143(1), pages 36-58, November.
    3. Matthew O. Jackson, 2003. "A survey of models of network formation: Stability and efficiency," Working Papers 1161, California Institute of Technology, Division of the Humanities and Social Sciences.
    4. Leigh Tesfatsion, 1998. "Ex Ante Capacity Effects in Evolutionary Labor Markets with Adaptive Search," Labor and Demography 9811003, EconWPA.
    5. Dutta, Bhaskar & Ghosal, Sayantan & Ray, Debraj, 2005. "Farsighted network formation," Journal of Economic Theory, Elsevier, vol. 122(2), pages 143-164, June.
    6. Rodrigo Harrison & Roberto Munoz, 2003. "Global Games with Strategic Substitutes," Working Papers gueconwpa~03-03-07, Georgetown University, Department of Economics.
    7. Matthew O. Jackson, 2002. "The Stability and Efficiency of Economic and Social Networks," Microeconomics 0211011, EconWPA.

    More about this item

    Keywords

    Evolutionary match-and-play game; Gale-Shapley matching; iterated prisoner's dilemma; trade networks; endogenous interations; agent-based computational economics.;

    JEL classification:

    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory
    • C8 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs
    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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