The Evolution of Conventions under Incomplete Information
- 314 Downloads
We formulate an evolutionary learning process with trembles for static games of incomplete information. For many games, if the amount of trembling is small, play will be in accordance with the games’ (strict) Bayesian equilibria most of the time supporting the notion of Bayesian equilibrium. Often the process will select a specific equilibrium. For two specific games of economic interest we characterize this selection. The first is an extension to incomplete information of the prototype strategic conflict known as “Chicken”. The second is an incomplete information bilateral monopoly, which is also an extension to incomplete information of Nash’s demand game, or a simple version of the so-called sealed bid double auction. The examples reveal that equilibrium selection by evolutionary learning may well be in favor of Bayesian equilibria where some types of players fail to coordinate, so that the equilibrium outcomes are inefficient.
Key wordsStatic games of incomplete information Bayesian games Evolution Conventions Chicken Bilateral monopoly Double auction
Unable to display preview. Download preview PDF.
- 2.Canning, D., Language Conventions in Common Interest Signaling Games, Discussion Paper # 607, Columbia University (1992)Google Scholar
- 3.Chatterjee, K, Samuelson, W., Bargaining under Incomplete Information, Operations Research, 31, 835–851 (1983).Google Scholar
- 4.Harsanyi, J.C., Selten R., A General Theory of Equilibrium Selection in Games, Cambridge: MIT Press (1988).Google Scholar
- 8.Myatt, D.P, Wallance, C., Adaptive Play by Idiosyncratic Agents, Discussion Paper #89, Department of Economics, University of Oxford (2002)Google Scholar
- 10.Nöldeke, G., Samuelson, L., A Dynamic Model of Equilibrium Selection in Signalling Markets, Journal of Economic Theory, 73, 118–156 (1997)Google Scholar