Evolutionary game theory provides an answer to two of the central questions in economic modeling: when is it reasonable to assume that people are rational? And, when is it reasonable to assume that behavior is part of a Nash equilibrium (and if it is reasonable, which equilibrium)? The traditional answers are not compelling, and much of evolutionary modeling is motivated by the need for a better answer. Evolutionary game theory suggests that, in a range of settings, agents do (eventually) play a Nash equilibrium. Moreover, evolutionary modeling has shed light on the relative plausibility of different Nash equilibria.

Journal Article Simultaneous Signaling in an Oligopoly Model Get access George J. Mailath George J. Mailath University of Pennsylvania Search for other works by this author on: Oxford Academic Google Scholar The Quarterly Journal of Economics, Volume 104, Issue 2, May 1989, Pages 417–427, https://doi.org/10.2307/2937856 Published: 01 May 1989

This paper provides two results that are useful in proving the exist ence of and characterizing separating equilibria in signaling games. A key element in the analysis of separating equilibria is the examina tion of the implied incentive compatibility constraints. It is shown that these constraints imply differentiability of strategies. In addi tion, a monotonicity condition (which is similar to the single crossi ng condition) is analyzed that is necessary and sufficient for there to be a strategy satisfying the incentive compatibility constraints. As a direct consequence of these two results, the analysis of Paul Milgrom and John Roberts (1982) is considerably strengthened.

A yes or no decision must be made about some issue. All agents must agree. The “Coase Theorem” asserts that the efficient outcome will always result. Suppose the value (positive or negative) that an individual attaches to an affirmative decision is privately known to that individual. It is proved, under very mild conditions, that with independent types, as the number of agents increases, the probability of an affirmative efficient decision goes to zero. An example in which it is common knowledge that an affirmative decision is efficient and yet the probability of such a decision goes to zero is given.

We introduce a distinction between a firm and its network of workers. In a competitive world, if networks are easily lured away, the workers must receive the entire value of their contribution to the firm. How then can service firms have equity value? A model is analysed in which workers are paid less as a group than their value, even in a competitive world. The workers are assumed to have a nonwage benefit for working at the current firm; this benefit is privately known. These privately known benefits make it impossible for the workers to agree on a division of their value should they leave the existing firm for a new enterprise. The result is that the workers may receive a total compensation that is less than their contribution to the firm.

We analyze an evolutionary model with a finite number of players and with noise or mutations.The expansion and contraction of strategies is linked-as usual-to their current relative success, but mutations-which perturb the system away from its deterministic evolution-are present as well.Mutations can occur in every period, so the focus is on the implications of ongoing mutations, not a one-shot mutation.The effect of these mutations is to drastically reduce the set of equilibria to what we term "long-run equilibria."For 2 x 2 symmetric games with two symmetric strict Nash equilibria the equilibrium selected satisfies (for large populations) Harsanyi and Selten's (1988) criterion of risk-dominance.In particular, if both strategies have equal security levels, the Pareto dominant Nash equilibrium is selected, even though there is another strict Nash equilibrium.

People reason about uncertainty with deliberately incomplete models. How do people hampered by different, incomplete views of the world learn from each other? We introduce a model of “ model-based inference.” Model-based reasoners partition an otherwise hopelessly complex state space into a manageable model. Unless the differences in agents’ models are trivial, interactions will often not lead agents to have common beliefs or beliefs near the correct-model belief. If the agents’ models have enough in common, then interacting will lead agents to similar beliefs, even if their models also exhibit some bizarre idiosyncrasies and their information is widely dispersed.

We study the long-run sustainability of reputations in games with imperfect public monitoring. It is impossible to maintain a permanent reputation for playing a strategy that does not play an equilibrium of the game without uncertainty about types. Thus, a player cannot indefinitely sustain a reputation for noncredible behavior in the presence of imperfect monitoring.

We study transactions that require investments before trading in a competitive market, when forward contracts fixing the transaction price are absent. We show that, despite the market being perfectly competitive and subject to arbitrarily little uncertainty, the inability to jointly determine investment levels and prices may make it impossible for buyers and sellers to predict the prices at which they will trade, leading to inefficient levels of investment and trade.