nep-evo New Economics Papers
on Evolutionary Economics
Issue of 2005‒05‒23
six papers chosen by
Matthew Baker
US Naval Academy, USA

  1. Dynamic Psychological Games By Pierpaolo Battigalli; Martin Dufwenberg
  2. Learning dynamics with private and public signals By Adam Copeland
  3. Properties of equilibrium asset prices under alternative learning schemes By Massimo Guidolin; Allan Timmerman
  4. Peers and Culture By Sáez-Martí, María; Sjögren, Anna
  5. Endogenous Institutions and the Dynamics of Corruption By Esther Bruegger
  6. Replicator Dynamics with Frequency Dependent Stage Games By Esther Bruegger

  1. By: Pierpaolo Battigalli; Martin Dufwenberg
    Date: 2005–05–14
  2. By: Adam Copeland
    Abstract: This paper studies the evolution of firms' beliefs in a dynamic model of technology adoption. Firms play a simple variant of the classic two-armed bandit problem, where one arm represents a known, deterministic production technology and the other arm an unknown, stochastic technology. Firms learn about the unknown technology by observing both private and public signals. I find that because of the externality associated with the public signal, the evolution of beliefs under a market equilibrium can differ significantly from that under a planner. In particular, firms experiment earlier under the planner than they do under the market equilibrium and thus firms under the planner generate more information at the start of the model. This intertemporal effect brings about the unusual result that, on a per period basis, there exist cases where firms in a market equilibrium over-experiment relative to the planner in the latter periods of the model.
    Date: 2004
  3. By: Massimo Guidolin; Allan Timmerman
    Abstract: This paper characterizes equilibrium asset prices under adaptive, rational and Bayesian learning schemes in a model where dividends evolve on a binomial lattice. The properties of equilibrium stock and bond prices under learning are shown to differ significantly compared with prices under full information rational expectations. Learning causes the discount factor and risk-neutral probability measure to become path-dependent and introduces serial correlation and volatility clustering in stock returns. We also derive conditions under which the expected value and volatility of stock prices will be higher under learning than under full information. Finally, we derive restrictions on prior beliefs under which Bayesian and rational learning lead to identical prices.
    Keywords: Assets (Accounting) ; Rational expectations (Economic theory)
    Date: 2005
  4. By: Sáez-Martí, María (The Research Institute of Industrial Economics); Sjögren, Anna (The Research Institute of Industrial Economics)
    Abstract: We analyze the evolution of cultural traits when parents purposefully invest resources in order to socialize their children to the cultural traits that maximize child lifetime utility. We assume that children are not passive in their adoption of traits from peers. Instead they are guided by an evaluation of the merit of traits. We show that such evaluation is likely to render this process of "oblique transmission" biased. We then show that when transmission of traits from society is biased or frequency dependent, cultural diversity is sustainable even when all parents strive to transmit the same trait. We also show that demand for cultural pluralism on the part of parent does not guarantee cultural diversity.
    Keywords: Peer Groups; Cultural Transmission; Cultural Diversity; Oblique Transmission
    JEL: D10 I20 J13
    Date: 2005–05–12
  5. By: Esther Bruegger
    Abstract: While empirical studies which analyze large cross section country data find that corruption lowers investment and thereby economic growth, this result cannot be established for certain subsamples of countries. We argue that one reason for these mixed findings may be that a country's corruption and growth rates are tightly linked as variables of a dynamic process which can have several equilibria or have different sets of equilibria. In order to understand the circumstances in which a country converges towards a certain equilibrium, we model the individual decisions to invest and corrupt as an evolutionary game. In this model the quality of government institutions is an endogenous variable, depending on the corruption rate, the population income, and the type of institutions; the quality of institutions itself then determines the future incentives to corrupt. The comprehension of these feedback effects allows us to study the role of the type of institutions for the dynamics of corruption. We present the equilibria for different types of institutions and discuss the resulting dynamics. The results suggest that cross country studies may significantly underestimate the impact of corruption on growth for certain countries. Depending on how the quality of institutions depends on corruption and income, corruption can either lower growth, suppress it entirely, or be positively correlated with growth in some special situations
    Keywords: Corruption; Institutions; Feedback Effects; Evolutionary Game
    JEL: C73 D73
    Date: 2005–02
  6. By: Esther Bruegger
    Abstract: We analyze evolutionary games with replicator dynamics that have frequency dependent stage games. In such an evolutionary game, the payoffs of a strategy at any point in time are functions of the strategy shares given by the players' strategy choices at that time. This framework is suited to model feedback effects between population variables and individual incentives, indirect network effects, and behavior under social norms. We show that the replicator dynamics with frequency dependent stage games is well behaved, i.e. has unique solutions and is simplex invariant for all initial strategy states. Moreover, we present an extension of Liapunov's Theorem that facilitates the analysis of evolutionary equilibria for frequency dependent evolutionary games
    Keywords: Replicator Dynamics; Frequency Dependent; State Dependent; Evolutionary Games; Liapunov
    JEL: C73
    Date: 2005–03

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