Adaptive play by idiosyncratic agents

David P. Myatt, Chris C. Wallace

Research output: Contribution to journalArticlepeer-review

Abstract

Equilibrium selection in coordination games has generated a large literature. Kandori, Mailath and Rob [Econometrica 61 (1993) 29] and Young [Econometrica 61 (1993) 57] studied dynamic models of aggregate behaviour where agents best-respond to observations of population play. Crucially, infrequent mistakes ("mutations") allow agents to take actions contrary to current trends and prevent initial configurations from determining long-run play. An alternative approach is offered here: Trembles are added to payoffs so that with some probability it is optimal to act against the flow of play. The long-run distribution of population behaviour is characterised-modes correspond to stable Bayesian Nash equilibria. Allowing the variance of payoff trembles to vanish (a purification process) a single equilibrium is played almost always in the long run. Kandori, Mailath, and Rob, and Young, show that the number of contrary actions required to escape an equilibrium determines selection; here, the likelihood that such actions are taken is equally important.

Original languageEnglish
Pages (from-to)124-138
Number of pages15
JournalGames and Economic Behavior
Volume48
Issue number1
DOIs
Publication statusPublished - Jul 2004

Keywords

  • Adaptive play
  • Equilibrium selection
  • Evolution
  • Payoff idiosyncrasy

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