We propose a simple dynamic adjustment mechanism, equivalent to the standard replicator dynamics in discrete time, to study the time evolution of a population of players facing a binary choice game, and apply this mechanism to minority games in order to investigate the effects of memory on the stability of the unique Nash equilibrium. Two different kinds of memory are considered, one where the players take into account the current and the previous payoffs in order to decide the strategy chosen in the next period, and the other one where the players consider the whole series of payoffs observed in the past through a discounted sum with exponentially fading weights. Both the memory representations proposed lead to an analytically tractable two-dimensional dynamical system, so that analytical results can be given for the stability of the Nash equilibrium. However, a global analysis of the models – performed by numerical methods and guided by the analytical results – shows that some complexities arise for intermediate values of the memory parameter, even if the stabilization effect of uniform memory is stated in both cases.
Binary games Minority games Replicator dynamics Memory Stability
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Work developed in the framework of the research project on “Dynamic Models for behavioural economics” financed by DESP-University of Urbino. Ugo Merlone gratefully acknowledges the Department of Economics of Chuo University in Tokyo for funding his participation to the Tokyo NED conference.
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Conflict of interests
The authors declare that they have no conflict of interest.
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