Noise Matters in Heterogeneous Populations

Tom Quilter

ESE Discussion Papers from Edinburgh School of Economics, University of Edinburgh

Abstract: The concept of boundedly rational agents in evolutionary game theory has succeeded in producing clear results when traditional methodology was failing. However the majority of such papers have obtained their results when this bounded rationality itself vanishes. This paper considers whether such results are actually a good reflection of a population whose bounded rationality is small, but non-vanishing. We also look at a heterogenous population who play a co-ordination game but have conflicting interests, and investigate the stability of an equilibria where two strategies co-exist together. Firstly, I find that results using the standard vanishing noise approach can be very different from those obtained when noise is small but persistent. Secondly, when the results differ it is the non-vanishing noise approach which selects the co-existence equilibria. As recent economic and psychology studies highlight the irrationality of their human subjects, this paper seeks to further demonstrate that the literature needs to concentrate more on the analysis of truly noisy populations.

Keywords: Non-vanishing noise; equilibrium selection; strategy co-existence. (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-evo
Date: 2007-09-01
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Persistent link: http://EconPapers.repec.org/RePEc:edn:esedps:169

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