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A Note on Risk Aversion and Evolution to Equilibrium in 2x2 Coordination Games

Murali Agastya
University of Sydney - Department of Economics

Suren Basov
La Trobe University

January 2004

Abstract:
In this note we point out the effect of risk-aversion on both the speed of deterministic convergence and the waiting times involved in equilibrium selection in 2 X 2 coordination games. Risk-aversion destabilizes the Pareto optimal equilibrium in two different ways: it decreases the size of its basin of attraction and slows the rate of deterministic convergence within its basin of attraction. It turns out that the first effect is quite significant: moderate levels of risk aversion are enough even in large populations to lead the system from the Pareto Optimal equilibrium to a risk-dominant equilibrium after just one mutation.

Keywords: Risk aversion, risk dominance, speed of convergence

JEL Classifications: C78, D83

Working Paper Series

Date posted: June 20, 2006 ; Last revised: June 20, 2006

Suggested Citation

Agastya, Murali K. and Basov, Suren, A Note on Risk Aversion and Evolution to Equilibrium in 2x2 Coordination Games (January 2004). Available at SSRN: http://ssrn.com/abstract=484722

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Contact Information

Murali K. Agastya (Contact Author) University of Sydney - Department of Economics ( email ) Rm 364, Merewether Bldg. Sydney NSW 2006 Australia +61 2 9351 3071 (Phone) +61 2 9351 4341 (Fax)
Suren Basov La Trobe University ( email ) Australia (61 3) 9479 1330 (Phone) (61 3) 9479 1654 (Fax)

Abstract

References (20)

Date posted: June 20, 2006 ; Last revised: June 20, 2006

Suggested Citation

Contact Information

Murali K. Agastya (Contact Author)

Suren Basov