Best reply structure and equilibrium convergence in generic games

Marco Pangallo, J. Farmer and Torsten Heinrich

INET Oxford Working Papers from Institute for New Economic Thinking at the Oxford Martin School, University of Oxford

Abstract: Game theory is widely used as a behavioral model for strategic interactions in biology and social science. It is common practice to assume that players quickly converge to an equilibrium, e.g. a Nash equilibrium. This can be studied in terms of best reply dynamics, in which each player myopically uses the best response to her opponent's last move. Existing research shows that convergence can be problematic when there are best reply cycles. Here we calculate how typical this is by studying the space of all possible two-player normal form games and counting the frequency of best reply cycles. The two key parameters are the number of moves, which defines how complicated the game is, and the anti-correlation of the payoffs, which determines how competitive it is. We find that as games get more complicated and more competitive, best reply cycles become dominant. The existence of best reply cycles predicts non-convergence of six different learning algorithms that have support from human experiments. Our results imply that for complicated and competitive games equilibrium is typically an unrealistic assumption. Alternatively, if for some reason "real" games are special and do not possess cycles, we raise the interesting question of why this should be so.

Keywords: Game theory; Learning; Equilibrium; Statistical Mechanics (search for similar items in EconPapers)
JEL-codes: C62 C63 C73 D83 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2018-03
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Working Paper: Best reply structure and equilibrium convergence in generic games (2018)
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