The Evolution of Conventions Under Incomplete Information

UPF Economics & Business Working Paper No. 475

43 Pages Posted: 22 Nov 2000

See all articles by Hans Jørgen Whitta-Jacobsen

Hans Jørgen Whitta-Jacobsen

University of Copenhagen - Department of Economics

Mogens Jensen

University of Copenhagen

Birgitte Sloth

University of Copenhagen - Department of Economics

Date Written: February 2000

Abstract

We formulate an evolutionary learning process in the spirit of Young (1993a) for games of incomplete information. The process involves trembles. For many games, if the amount of trembling is small, play will be in accordance with the games' (semi-strict) Bayesian equilibria most of the time. This supports the notion of Bayesian equilibrium. Further, often play will most of the time be in accordance with exactly one Bayesian equilibrium. This gives a selection among the Bayesian equilibria. For two specific games of economic interest we characterize this selection. The first is an extension to incomplete information of the prototype strategic conflict known as Chicken. The second is an incomplete information bilateral monopoly, which is also an extension to incomplete information of Nash's demand game, or a simple version of the so-called sealed bid double auction. For both games selection by evolutionary learning is in favor of Bayesian equilibria where some types of players fail to coordinate, such that the outcome is inefficient.

Keywords: Games of incomplete information, Bayesian equilibrium, evolution, learning, conventions.

JEL Classification: C72

Suggested Citation

Whitta-Jacobsen, Hans Jørgen and Jensen, Mogens and Sloth, Birgitte, The Evolution of Conventions Under Incomplete Information (February 2000). UPF Economics & Business Working Paper No. 475, Available at SSRN: https://ssrn.com/abstract=235659 or http://dx.doi.org/10.2139/ssrn.235659

Hans Jørgen Whitta-Jacobsen (Contact Author)

University of Copenhagen - Department of Economics ( email )

Studistraede 6
EPRU
DK 1455 Copenhagen
Denmark
+45 35 32 30 30 (Phone)
+45 35 32 30 00 (Fax)

Mogens Jensen

University of Copenhagen ( email )

Institute of Economics
Studiestraede 6
DK-1455 Copenhagen K
Denmark

Birgitte Sloth

University of Copenhagen - Department of Economics ( email )

Øster Farimagsgade 5
Bygning 26
1353 Copenhagen K.
Denmark
353-23027 (Phone)

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