Stochastic Strategy Adjustment in Coordination Games

M. Kosfeld

Research output: Book/ReportReportProfessional

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Abstract

We explore a model of equilibrium selection in coordination games, where agents stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, we assume that agents follow a rule of "switching to better strategies more likely". We relate this behavior to work of Rosenthal (1989) and Schlag (1998). Our main results are that both strict Nash equilibria of the coordination game correspond to stationary distributions of the process, hence evolution of play is not ergodic, but instead depends on initial conditions. However, coordination on the risk-dominant equilibrium occurs with probability one whenever the initial share of agents playing the risk-dominant strategy has at least some positive measure, how ever small, within the whole population.
Original languageEnglish
Place of PublicationTilburg
PublisherMicroeconomics
Number of pages18
Volume775
Publication statusPublished - 1999

Publication series

NameFEW Research Memorandum
Volume775

Fingerprint

Coordination games
Adjustment strategies
Nash equilibrium
Dominant strategy
Equilibrium selection
Best response
Initial conditions
Stationary distribution

Keywords

  • noncooperative games
  • equilibrium theory
  • strategy
  • stochastic processes
  • coordination

Cite this

Kosfeld, M. (1999). Stochastic Strategy Adjustment in Coordination Games. (FEW Research Memorandum; Vol. 775). Tilburg: Microeconomics.
Kosfeld, M. / Stochastic Strategy Adjustment in Coordination Games. Tilburg : Microeconomics, 1999. 18 p. (FEW Research Memorandum).
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Kosfeld, M 1999, Stochastic Strategy Adjustment in Coordination Games. FEW Research Memorandum, vol. 775, vol. 775, Microeconomics, Tilburg.

Stochastic Strategy Adjustment in Coordination Games. / Kosfeld, M.

Tilburg : Microeconomics, 1999. 18 p. (FEW Research Memorandum; Vol. 775).

Research output: Book/ReportReportProfessional

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T1 - Stochastic Strategy Adjustment in Coordination Games

AU - Kosfeld, M.

N1 - Pagination: 18

PY - 1999

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N2 - We explore a model of equilibrium selection in coordination games, where agents stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, we assume that agents follow a rule of "switching to better strategies more likely". We relate this behavior to work of Rosenthal (1989) and Schlag (1998). Our main results are that both strict Nash equilibria of the coordination game correspond to stationary distributions of the process, hence evolution of play is not ergodic, but instead depends on initial conditions. However, coordination on the risk-dominant equilibrium occurs with probability one whenever the initial share of agents playing the risk-dominant strategy has at least some positive measure, how ever small, within the whole population.

AB - We explore a model of equilibrium selection in coordination games, where agents stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, we assume that agents follow a rule of "switching to better strategies more likely". We relate this behavior to work of Rosenthal (1989) and Schlag (1998). Our main results are that both strict Nash equilibria of the coordination game correspond to stationary distributions of the process, hence evolution of play is not ergodic, but instead depends on initial conditions. However, coordination on the risk-dominant equilibrium occurs with probability one whenever the initial share of agents playing the risk-dominant strategy has at least some positive measure, how ever small, within the whole population.

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KW - equilibrium theory

KW - strategy

KW - stochastic processes

KW - coordination

M3 - Report

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PB - Microeconomics

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Kosfeld M. Stochastic Strategy Adjustment in Coordination Games. Tilburg: Microeconomics, 1999. 18 p. (FEW Research Memorandum).