The author systematically examines one of the important issues of information — establishing the market price. He introduces the concept of «search» — where a buyer wanting to get a better price, is forced to question sellers. The article deals with various aspects of finding the necessary information.

Economics of Information

In the Hamadryas baboon, males are substantially larger than females. A troop of baboons is subdivided into a number of ‘one-male groups’, consisting of one adult male and one or more females with their young. The male prevents any of ‘his’ females from moving too far from him. Kummer (1971) performed the following experiment. Two males, A and B, previously unknown to each other, were placed in a large enclosure. Male A was free to move about the enclosure, but male B was shut in a small cage, from which he could observe A but not interfere. A female, unknown to both males, was then placed in the enclosure. Within 20 minutes male A had persuaded the female to accept his ownership. Male B was then released into the open enclosure. Instead of challenging male A , B avoided any contact, accepting A’s ownership.

Evolution and the Theory of Games

Evolutionary game dynamics is the application of population dynamical methods to game theory. It has been introduced by evolutionary biologists, anticipated in part by classical game theorists. In this survey, we present an overview of the many brands of deterministic dynamical systems motivated by evolutionary game theory, including ordinary differential equations (and, in particular, the replicator equation), differential inclusions (the best response dynamics), difference equations (as, for instance, fictitious play) and reaction-diffusion systems. A recurrent theme (the so-called `folk theorem of evolutionary game theory') is the close connection of the dynamical approach with the Nash equilibrium, but we show that a static, equilibrium-based viewpoint is, on principle, unable to always account for the long-term behaviour of players adjusting their behaviour to maximise their payoff.

https://www.ams.org/bull/2003-40-04/S0273-0979-03-00988-1/S0273-0979-03-00988-1.pdf

Evolutionary Game Dynamics

This paper describes the correlations between inequality and the growth rates in cross-country data. Using non-parametric methods, we show that the growth rate is an inverted U-shaped function of net changes in inequality: Changes in inequality (in any direction) are associated with reduced growth in the next period. The estimated relationship is robust to variations in control variables and estimation methods. This inverted U-curve is consistent with a simple political economy model, although, as we point out, efforts to interpret this model causally run into difficult identification problems. We show that this non-linearity is sufficient to explain why previous estimates of the relationship between the level of inequality and growth are so different from one another.

Inequality and Growth: What Can the Data Say?

One in a while, every twenty years perhaps, a book appears that makes one see a whole area of human experience in a new light. Once pointed out, the new insights are sp obvious that one cannot understand how one could have missed them before. In the broad area of the political economy of western society, J.A. Schumpeter's Capitalism, Socialism and Democracy (1943) was one such book. So, with all its faults, was J.K. Galbraith's The Affluent Society (1957). Fred Hirsch's Social Limits to Growth (Routledge and Kegan Paul, London, 1977) is another.

Social limits to growth

We investigate consumer choice where individuals care not only about the absolute values of consumption, but also about their status. This is defined as their ordinal rank in the distribution of consumption of one "positional" good. In such a situation, the consumer's problem becomes strategic as her utility will depend on the consumption choices of others. In the symmetric Nash equilibrium of the resulting game, each individual spends more on visible consumption than in the absence of a concern for status and has lower utility. Treating status endogenously allows us to analyze how exogenous changes in the distribution of income can affect individual choices. In a more affluent society, individuals spend a higher proportion of their income on the positional good, which leads to a reduction in utility at each income level. In a more equal society those with lower incomes spend more on conspicuous consumption and are worse off. We go on to analyze externality-correcting consumption taxes and subsidies.

Running to Keep in the Same Place: Consumer Choice as a Game of Status

If individuals care about their status, defined as their rank in the distribution of consumption of one "positional" good, then the consumer's problem is strategic as her utility depends on the consumption choices of others. In the symmetric Nash equilibrium, each individual spends an inefficiently high amount on the status good. Using techniques from auction theory, we analyze the effects of exogenous changes in the distribution of income. In a richer society, almost all individuals spend more on conspicuous consumption, and individual utility is lower at each income level. In a more equal society, the poor are worse off.

http://www.homepages.ed.ac.uk/hopkinse//status.pdf

Reinforcement learning and stochastic fictitious play are apparent rivals as models of human learning. They embody quite different assumptions about the processing of information and optimization. This paper compares their properties and finds that they are far more similar than were thought. In particular, the expected motion of stochastic fictitious play and reinforcement learning with experimentation can both be written as a perturbed form of the evolutionary replicator dynamics. Therefore they will in many cases have the same asymptotic behavior. In particular, local stability of mixed equilibria under stochastic fictitious play implies local stability under perturbed reinforcement learning. The main identifiable difference between the two models is speed: stochastic fictitious play gives rise to faster learning.

/pdf/two-competing-models-of-how-people-learn-in-games-2gfy4b4rcr.pdf

Two Competing Models of How People Learn in Games

Reinforcement learning and stochastic fictitious play are apparent rivals as models of human learning. They embody quite different assumptions about the processing of information and optimisation. This paper compares their properties and finds that they are far more similar than were thought. In particular, exponential fictitious play and suitably perturbed reinforcement model have the same expected motion and therefore will have the same asymptotic behaviour. It is also shown that more general models of stochastic fictitious play and perturbed reinforcement between the two models is speed: stochastic fictitious play gives rise to faster learning.

Two Competing Models of How People Learn in Games (first version)

https://www.socsci.uci.edu/~duffy/papers/duffy_hopkins.pdf

Ed Hopkins

Papers

Running to Keep in the Same Place: Consumer Choice as a Game of Status

Running to Keep in the Same Place: Consumer Choice as a Game of Status

Two Competing Models of How People Learn in Games

Two Competing Models of How People Learn in Games (first version)

Learning, information, and sorting in market entry games: theory and evidence