Evolutionarily Stable (Mis)specifications:Theory and Applications

Kevin He and Jonathan Libgober

PIER Working Paper Archive from Penn Institute for Economic Research, Department of Economics, University of Pennsylvania

Abstract: We introduce an evolutionary framework to evaluate competing (mis)specifications in strategic situations, focusing on which misspecifications can persist over correct specifications. Agents with heterogeneous specifications coexist in a society and repeatedly play a stage game against random opponents, drawing Bayesian inferences about the environment based on personal experience. One specification is evolutionarily stable against another if, when-ever sufficiently prevalent, its adherents obtain higher average payoffs than their counterparts. Agents’ equilibrium beliefs are constrained but not wholly determined by specifications. En-dogenous belief formation through the learning channel generates novel stability phenomena compared to frameworks where single beliefs are the heritable units of cultural transmission. In linear-quadratic-normal games where players receive correlated signals but possibly misperceive the information structure, the correct specification is evolutionarily unstable against a correlational error whose direction depends on social interaction structure. We also endogenize coarse thinking in games and show how its prevalence varies with game parameters.

Keywords: misspecified Bayesian learning; endogenous misspecifications; evolutionary stability; higher-order beliefs; analogy classes (search for similar items in EconPapers)
Pages: 68 pages
Date: 2021-08-12
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Working Paper: Evolutionarily Stable (Mis)specifications: Theory and Applications (2023)
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