Economic Theory

, Volume 20, Issue 2, pp 321–339

Stochastic strategy adjustment in coordination games

  • Michael Kosfeld
Research Article

DOI: 10.1007/s001990100223

Cite this article as:
Kosfeld, M. Econ Theory (2002) 20: 321. doi:10.1007/s001990100223

Summary.

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 bounded-rationality 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.

Keywords and Phrases: Equilibrium selection, Coordination game, Evolution, Strategy adjustment. 
JEL Classification Numbers: C72. 

Copyright information

© Springer-Verlag Berlin Heidelberg 2002

Authors and Affiliations

  • Michael Kosfeld
    • 1
  1. 1.Institute for Empirical Research in Economics, University of Zurich, Blümlisalpstrasse 10, 8006 Zürich, SWITZERLAND (e-mail: kosfeld@iew.unizh.ch) CH

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