A Note on Equilibrium Selection in Polya-Urn Coordination Games

Giorgio Fagiolo ()

LEM Papers Series from Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy

Abstract: We study equilibrium selection in coordination games played by a population whose size increases over time. In each time period, a new player enters the economy, observes current strategy shares and irreversibly chooses a strategy on the basis of expected payoffs. We employ a simple Polya-Urn scheme to discuss the efficiency of long-run equilibria under alternative individual decision rules (e.g. best-reply, logit, etc.). We show that the system delivers a predictable outcome only when agents employ either a linear or a logit probability rule. If agents employ deterministic best-reply rules, Pareto-efficient coordination can occur, but the actual outcome depends on initial conditions and chance. In all other cases, coexistence of strategies characterizes equilibrium configurations.

Keywords: Coordination Games; Equilibrium Selection; Pareto-Efficient vs. Risk- Dominant Equilibrium; Polya-Urn Schemes. (search for similar items in EconPapers)
Date: 2005-04-20
New Economics Papers: this item is included in nep-cbe, nep-gth and nep-tid
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Journal Article: A Note on Equilibrium Selection in Polya-Urn Coordination Games (2005)
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Persistent link: https://EconPapers.repec.org/RePEc:ssa:lemwps:2005/05

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