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The Evolution of Conventions under Incomplete Information

  • Mogens Jensen
  • Birgitte Sloth
  • Hans Jøgen Whitta-Jacobsen
Chapter
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Part of the Studies in Economic Theory book series (ECON.THEORY, volume 25)

Summary

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 words

Static games of incomplete information Bayesian games Evolution Conventions Chicken Bilateral monopoly Double auction 

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Copyright information

© Springer-Verlag Berlin Heidelberg 2006

Authors and Affiliations

  • Mogens Jensen
    • 1
  • Birgitte Sloth
    • 2
  • Hans Jøgen Whitta-Jacobsen
    • 3
  1. 1.DONG A/SHrsholmDenmark
  2. 2.Institute of EconomicsUniversity of Southern DenmarkOdense MDenmark
  3. 3.Institute of EconomicsUniversity of CopenhagenCopenhagen KDenmark

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