Conventions - Some Conventional and Some Not So Conventional Wisdom

Siegfried Berninghaus, Werner Güth () and Hartmut Kliemt

Papers on Strategic Interaction from Max Planck Institute of Economics, Strategic Interaction Group

Abstract: In this paper we consider conventions as regularities in behavior which help to solve coordination problems in a society. These problems can be formalized as non-cooperative games with several equilibria. We know that in such situations serious problems of equilibrium selection arise which cannot be solved by traditional game theoretical reasoning. Conventions seem to be a powerful tool to solve equilibrium selection problems in real world societies. Essentially, two questions will be addressed in this paper: a) Which conventions will emerge in a society? b) How can a society break away from an inferior and reach a superior convention? It turns out that "risk dominance" of a convention plays a crucial role in dealing with both questions and generally in the evolution of conventions.

Pages: 25 pages
Date: 2004-11
New Economics Papers: this item is included in nep-cbe, nep-evo and nep-hpe
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Journal Article: Conventions: Some Conventional and Some Not So Conventional Wisdom (2005)
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