Evolutionary Stability in the Investment-Opportunism-Retaliation Game

Authors: Curtis Eaton B.¹; Morrison W.G.²

Source: Journal of Bioeconomics, Volume 5, Number 1, 2003 , pp. 27-45(19)

Publisher: Springer

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Abstract:

Can economically efficient outcomes be obtained and sustained in the absence of externally enforced property rights? We study the evolutionary properties of a game that exhibits two well-defined Nash equilibria: one generates an inefficient outcome while the other set generates an efficient outcome supported by the potential for retaliation. Although standard forward-looking refinements eliminate the efficient equilibrium, neither equilibrium type satisfies strict evolutionary stability criteria. However, both types of equilibrium define strategies that are neutrally stable, which makes them vulnerable to drift in dynamic environments. We conduct computer simulation experiments in which players learn adaptively via a tournament selection mechanism called sophisticated experimentation. Our simulations demonstrate that while the system spends a disproportionately high proportion of time in the inefficient equilibrium set, the efficient equilibrium is pervasive as the system drifts back and forth between the equilibrium sets, never settling on one or the other.

Keywords: equilibrium selection; dynamic evolutionary stability; drift; sophisticated experimentation

Language: English

Document Type: Review article

Affiliations: 1: Department of Economics, University of Calgary, Calgary, Alberta, Canada, T2N 1N4 (eaton@ucalgary.ca) 2: Department of Economics, Wilfrid Laurier University, Waterloo, Ontario, Canada, N2L 3C5 (bmorriso@wlu.ca)

Publication date: 2003-01-01