Adaptive play by idiosyncratic agents

Working paper

Equilibrium selection in coordination games has generated a large literature. Kandori, Mailath and Rob (1993) and Young (1993) studied dynamic models of aggregate behaviour in which agents choose best responses 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: Harsanyian trembles are added to agents' 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, via a purification process, a single equilibrium is played almost always in the long run. Kandori et al and Young show that the number of contrarian actions required to escape an equilibrium determines selection; here, the likelihood that such actions are taken is of equal importance.

Authors: Myatt, D; Wallace, C

• Publication status: Published
• Publisher: University of Oxford
• Series: Department of Economics Discussion Paper Series
• Publication date: 2002-03-01
• Paper number: 89
• Keywords: evolution; payoff idiosyncrasy; adaptive dynamics; equilibrium selection