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This paper presents an extension of a static model of economic conflict analyzed by Hirshleifer (1991, 1995) and Skaperdas (1992) to an infinite horizon differential game. Our aim is to highlight the strategic role of appropriation among a smaller group of agents in an intertemporal context. The model yields the conclusion that there exists a unique linear/nonlinear Markov perfect equilibrium strategy, even when strategies are defined over the entire state space. We demonstrate that “partial cooperation” can be seen as a long-run response to conflict. Moreover, a decrease in the effectiveness of appropriation, the depreciation rate of a common-pool stock, the rate of time preferences or an increase in the “degree of noise” improves the degree of “partial cooperation” and thus welfare in an anarchic society.

International audience; We consider a repeated stochastic coordination game with imperfect pub-lic monitoring. In the game any pattern of coordinated play is a perfect Bayesian Nash equilibrium. Moreover, standard equilibrium selection argu-ments either have no bite or they select an equilibrium that is not observed in actual plays of the game. We give experimental evidence for a unique equilibrium selection and explain this very robust finding by equilibrium selection based on behavioral arguments, in particular focal pointanalysis, probability matching and overconfidence. Our results have interesting ap-plicationsinifinance because the observed equilibrium exhibitsmomentum, reversal and excessvolatility. Moreover, the results may help to explain why technical analysisis acommonly observed investment style.

The definition of Walrasian competitive equilibrium, on which the Fundamental Existence and Welfare Theorems rest, assumes that all trading in decentralized exchange economies takes place at the final equilibrium prices, which further implies that at equilibrium prices the value of each agent’s equilibrium commodity bundle is equal to the value of her endowment, and equal treatment of agents with the same preferences, technology and endowment. The logic of the theorems supports the conclusion that in competitive economies prices, the allocation of commodities, and the distribution of income and material welfare are determined by the preferences, technology, and endowments of the agents. In real-world markets, however, agents can discover equilibrium prices only by making mutually advantageous transactions at disequilibrium prices. Any sequence of such transactions leads stably to an exchange equilibrium at which the offer prices of all agents are close to each other, and which exhausts all private opportunities to realize economic surpluses. The exchange equilibrium set, however, is in general a continuum, and the exact equilibrium reached depends on the path of transactions. In general, exchange equilibria do not treat agents with the same preferences and endowments equally, and the exchange equilibrium allocation of commodities does not conserve the values of individual agent endowments. Existence and stability of exchange equilibrium are transparent consequences of the logic of voluntary exchange, but because of transaction path dependence, equilibrium prices, allocations of commodities, and the distribution of wealth and economic welfare are not determined by agents’ preferences and endowments.

Schaffer [Schaffer, M.E., 1988. Evolutionarily stable strategies for a finite population and a variable contest size. Journal of Theoretical Biololgy 132, 469–478] proposed a concept of evolutionary stability for finite-population models that has interesting implications in economic models of evolutionary learning, since it is related to perfectly competitive equilibrium. The present paper explores the relation of this concept to Nash equilibrium in particular classes of games, including constant-sum games, games with weak payoff externalities, and games where imitative decision rules are individually improving. An illustration of the latter is provided in the context of Bertrand oligopoly with homogeneous product which allows for a characterization of the set of evolutionarily stable prices.

We explore the effect of the limited ability to process information on the convergence of firms toward equilibrium. In the context of a Cournot oligopoly with a unique and symmetric Nash equilibrium, firms are modeled as adaptive economic agents through a genetic algorithm. Computational experiments show that while market production is close to equilibrium, firm production is relatively far from the individual equilibrium level. This pattern of firm heterogeneity is not an artifact of random elements built into the decisional process. Instead, it comes from the market interaction of firms with cognitive limitations.

We extend the Level- n theory of bounded rationality from the domain of symmetric normal-form games to the domain of simple two-player, two-stage extensive-form games. We designed and conducted experiments to test pertinent hypotheses. The extended Level- n model fits the data remarkably well and significantly better than subgame perfect equilibrium theory. Moreover, we find that the vast majority of behavior appears individualistic. Further, we characterize the non-individualistic behavior as stemming from a combination of utilitarian and Fehr-Schmidt other-regarding preferences.

We consider an economy with a single capital stock that two agents strategically exploit by choosing a consumption profile over an infinite time horizon. We analyze two different games and their corresponding equilibria. In one game firms are able to pre-commit and choose simple time functions as their strategies. In the other game agents are assumed to employ Markov strategies. It turns out that in the case of pre-commitment there exists a threshold level of the capital stock such that if the initial stock is above this threshold, equilibrium consumption converges to the efficient steady state while if the initial condition is below it, the capital stock converges to zero. In case of the Markov equilibrium there exists a unique interior steady state that is globally stable.

Our experiments model a two-stage, two person non-cooperative game where subjects face a sequence of potential entry situations. Payoffs and entry costs are common knowledge. The subgame perfect equilibrium entails player I choosing an entry barring output and player E not entering. While many subjects played this way, a significant proportion of E players entered when it yielded negative net payoffs, and a non-trivial proportion of I players didn't seek deterrence. While these proportions fall over the course of the experiment, such behavior persists through the final period. Past experience influences I subjects' tendencies to seek deterrence.

We analyze the impact of the number of repetitions of a simple coordination game on equilibrium selection. Results of computerized coordination experiments with varying number of iterations show that the Pareto dominant equilibrium is selected already after a few periods when the number of iterations is sufficiently large. Our results can be partly explained by a particular version of the `learning direction theory'. Furthermore, we present a new framework for experimental design in real time.

In this paper, I use simple coordination games to examine the process under which precedents (or past equilibrium experiences) transfer across games. I study a 3-player conflict-of-interest game that possesses two focal equilibria: an equal payoff equilibrium and a coalitional equilibrium. The social convention of equal sharing is not sufficiently powerful to select the equal-payoff equilibrium. However, after subjects develop homegrown experience playing the equal-payoff equilibrium in an analogous 2-player game, they are significantly more likely to select the action associated with the equal-payoff equilibrium. However, surprisingly, they are also much more likely to select the action associated with the coalitional equilibrium. Using expectations data also collected in the experiment, I speculate on the reasons for this latter effect.

Several examples are presented which raise questions concerning the virtue of the noncooperative equilibrium as a solution concept. It is observed that an optimum response cycle may payoff dominate the unique noncooperative equilibrium. This work builds on an earlier example provided by Shapley.