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The Emergent Seed : Simplifying the Analysis of Dynamic Evolution

  • Economics


emergent-04-08-03.dvi The Emergent Seed: Simplifying the Analysis of Dynamic Evolution. Kevin Hasker∗ Economics Department Bilkent University 06800 Bilkent Ankara, Turkey E-mail: [email protected] Phone: +90 (312) 290-1875 Fax: +90 (312) 266-5140 15 February, 2004 Abstract In a model of Dynamic Evolution–as first popularized by Kandori, Mailath and Rob [14]–there is an underlying structure that helps determine the long run viability of limit sets, called the emergent seed. Relative to this structure long run viability is the additive component of the security level–the minimal distance out of a limit set’s basin of attraction–and the core attraction rate–the cost of evolving from one particular limit set to the limit set in question. The usefulness of this approach is shown by characterizing long run viability in all games with two limit sets, analyzing bargaining and contract games. JEL codes: C63 C73 C78 C79 1 Introduction Assuming equilibrium behavior can not be justified by rational learning. This is one of the implications of Kalai and Lehrer’s study of rational learning [13]. What is an alternative? One is to assume a specific type of “limitedly rational” behavior; allow players using this behavior to interact in an economy; and then study the resulting long run behavior. If one part of the model of limitedly rational behavior is that players occasionally “experiment” or “mutate” in a suboptimal way, then this is a model of dynamic evolution. Dynamic evolution–which has been called “Noisy Evolution”, and “Evolution with Noise” in various papers1–was introduced to the economic community by a pair of seminal papers in 1993: Kandori, Mailath ∗Acknowledgments: The author would like to thank Gil Eris and Sudipta Sarangi for their assistance, Peyton Young for his encouraging comments and Francesco Squintani for his discouraging comments at the appropriate times in this research. It goes without saying that any remaining errors are the responsibility of the author

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