 Prospect dynamics and loss dominanceRyoji Sawa and Jiabin Wu () Games and Economic Behavior, 2018, vol. 112, issue C, 98-124 Abstract: This paper investigates the role of loss-aversion in affecting the long-run equilibria of stochastic evolutionary dynamics. We consider a finite population of loss-averse agents who are repeatedly and randomly matched to play a symmetric two-player normal form game. When an agent revises her strategy, she compares the payoff from each strategy to a reference point. Under the resulting dynamics, called prospect dynamics, risk-dominance is no longer sufficient to guarantee stochastic stability in 2 × 2 coordination games. We propose a stronger concept, loss-dominance: a strategy is loss-dominant if it is risk-dominant and a maximin strategy. In 2 × 2 coordination games, the state where all agents play the loss-dominant strategy is uniquely stochastically stable under prospect dynamics for any degree of loss-aversion and all types of reference points. For symmetric two-player normal form games, a generalized concept, generalized loss-dominance, gives a sufficient condition for stochastic stability under prospect dynamics. Keywords: Evolutionary game theory; Behavioral game theory; Equilibrium selection; Loss-aversion; Prospect dynamic; Loss-dominance; Risk-dominance; Half-dominance; Maximin (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:gamebe:v:112:y:2018:i:c:p:98-124 DOI: 10.1016/j.geb.2018.07.006 Access Statistics for this article Games and Economic Behavior is currently edited by E. Kalai More articles in Games and Economic Behavior from Elsevier |
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