SFB 303 Discussion Paper No. B-410

Author: Schlag, Karl H., and Jörg Oechsler
Title: Loss of Commitment? An Evolutionary Analysis of Bagwell's Example
Abstract: In a recent paper Bagwell (1995) pointed out that only the Cournot outcome, but not the Stackelberg outcome, can be supported by a pure Nash equilibrium when actions of the Stackelberg leader are observed with the slightest error. The Stackelberg outcome, however, remains close to the outcome of a mixed equilibrium. We compare the predictions in various classes of evolutionary and learning processes in this game. Only the continuous best response dynamic uniquely selects the Stackelberg outcome under noise. All other dynamics analyzed allow for the Cournot equilibrium to be selected. In typical cases Cournot is the unique long run outcome even for vanishing noise in the signal.
Keywords: imperfectly observable commitment, evolution, imitation, learning, equilibrium selection.
JEL-Classification:
Creation-Date: July, 1997
URL: ../1997/b/bonnsfb410.pdf

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