Faculty of Economics and Business Administration Publications Database

Stochastic Strategy Adjustment in Cooridination Games

Volume: 20
Number: 2
Pages: 321 - 339
Month: September
ISSN-Print: 0938-2259
Link External Source: Online Version
Year: 2002
Keywords: Equilibrium selection; Coordination game; Evolution; Strategy adjustment
Abstract: The paper explores a model of equilibrium selection in coordination games, where agents from an infinite population stochastically adjust their strategies to changes in their local environment. Instead of playing perturbed best-response, it is assumed that agents follow a rule of ''switching to better strategies with higher probability''. This behavioral rule is related to boundedrationality models of Rosenthal (1989) and Schlag (1998). Moreover, agents stay with their strategy in case they successfully coordinate with their local neighbors. Our main results show that both strict Nash equilibria of the coordination game correspond to invariant 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 fraction contains infinitely many agents, independent of the spatial distribution of these agents.