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On the Evolution of Pareto‐Optimal Behavior in Repeated Coordination Problems[Note 1. E‐mail: lagunofr@gunet.georgetown.edu. Web page: www.georgetown.edu/lagunoff/lagunoff.htm. I wish to thank ...]
Author(s) -
Lagunoff Roger
Publication year - 2000
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/1468-2354.00064
Subject(s) - pareto principle , mathematical economics , nash equilibrium , repeated game , coordination game , independence (probability theory) , equilibrium selection , economics , evolutionary game theory , game theory , mathematics , mathematical optimization , statistics
I characterize the asymptotic behavior of a society facing a repeated‐common‐interest game. In this society, new individuals enter to replace their “parents” at random times. Each entrant has possibly different beliefs about others' behavior than his or her predecessor. A self‐confirming equilibrium (SCE) belief process describes an evolution of beliefs in this society consistent with a self‐confirming equilibrium of the repeated game. The main result shows that for any common‐interest game, the Pareto‐dominant equilibrium is a globally absorbing state of the behavioral dynamics when the SCE beliefs of new entrants satisfy certain independence and full‐support properties. This result does not involve either of the usual assumptions of myopia or large inertia common in evolutionary models, nor is this result possible if only Nash rather than self‐confirming equilibria are considered.