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Gale-Shapley Matching in an Evolutionary Trade Network Game

  • Leigh Tesfatsion

    (Iowa State University)

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.

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Paper provided by EconWPA in its series Game Theory and Information with number 9805004.

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Length: 40 pages
Date of creation: 04 Jun 1998
Date of revision: 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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  1. Leigh TESFATSION, 1995. "How Economists Can Get Alife," Economic Report 37, Iowa State University Department of Economics.
  2. Stanley, E.A. & Ashlock, Daniel & Tesfatsion, Leigh, 1994. "Iterated Prisoner's Dilemma with Choice and Refusal of Partners," Staff General Research Papers 11180, Iowa State University, Department of Economics.
  3. Young, H Peyton, 1993. "The Evolution of Conventions," Econometrica, Econometric Society, vol. 61(1), pages 57-84, January.
  4. George Mailath & Larry Samuelson & Avner Shaked, 1994. "Evolution and Endogenous Interactions," Game Theory and Information 9410003, EconWPA.
  5. Weisbuch, Gerard & Alan Kirman & Dorothea K. Herreiner, 1996. "Market Organization," Discussion Paper Serie B 391, University of Bonn, Germany.
  6. repec:cup:cbooks:9780521437882 is not listed on IDEAS
  7. Ellison, Glenn, 1993. "Learning, Local Interaction, and Coordination," Econometrica, Econometric Society, vol. 61(5), pages 1047-71, September.
  8. 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, June.
  9. Yannis M. Ioannides, 1996. "Evolution of Trading Structures," Working Papers 96-04-020, Santa Fe Institute.
  10. 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.
  11. William A. Brock & Steven N. Durlauf, 1995. "Discrete Choice with Social Interactions I: Theory," Working Papers 95-10-084, Santa Fe Institute.
  12. Esther Hauk, . "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.
  13. McFadzean, David & Tesfatsion, Leigh, 1999. "A C++ Platform for the Evolution of Trade Networks," Computational Economics, Society for Computational Economics, vol. 14(1-2), pages 109-34, October.
  14. Roth, Alvin E. & Sotomayor, Marilda, 1992. "Two-sided matching," Handbook of Game Theory with Economic Applications, in: R.J. Aumann & S. Hart (ed.), Handbook of Game Theory with Economic Applications, edition 1, volume 1, chapter 16, pages 485-541 Elsevier.
  15. Tesfatsion, Leigh, 1997. "A Trade Network Game with Endogenous Partner Selection," Staff General Research Papers 1680, Iowa State University, Department of Economics.
  16. Vriend, Nicolaas J, 1995. "Self-Organization of Markets: An Example of a Computational Approach," Computational Economics, Society for Computational Economics, vol. 8(3), pages 205-31, August.
  17. David Banks & Kathleen Carley, 1994. "Metric inference for social networks," Journal of Classification, Springer, vol. 11(1), pages 121-149, March.
  18. 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.
  19. Sergei Guriev & Igor Pospelov & Margarita Shakhova, . "Self-Organization of Trade Networks in an Economy with Imperfect Infrastructure," Computing in Economics and Finance 1996 _022, Society for Computational Economics.
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