Evolution and Walrasian Behavior in Market Games

Alexander Matros and Ted Loch Temzelides

Game Theory and Information from University Library of Munich, Germany

Abstract: We revisit the question of price formation in general equilibrium theory. We explore whether evolutionary forces lead to Walrasian equilibrium in the context of a market game, introduced by Shubik (1972). Market games have Pareto inferior (strict) Nash equilibria, in which some, and possibly all, markets are closed. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against multiple, simultaneous mutations. We show that the introduction of a small number of ``trading mutants'' is sufficient for Pareto improving trade to be generated. Provided that agents lack market power, Nash equilibria corresponding to approximate Walrasian equilibria constitute the only approximate SESS.

JEL-codes: C7 D8 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2004-09-21
New Economics Papers: this item is included in nep-evo
Note: Type of Document - pdf; pages: 17
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpga:0409009

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