Muddling Through: Noisy Equilibrium Selection

This paper examines an evolutionary model in which the primary source of ``noise'' that moves the model between equilibria is not arbitrarily improbable mutations but mistakes in learning. We model strategy selection as a birth death process, allowing us to find a simple, closed-form solution for the stationary distribution. We examine equilibrium selection by considering the limiting case as the population gets large, eliminating aggregate noise. Conditions are established under which the risk-dominant equilibrium in a 2_2 game is selected by the model as well as conditions under which the payoff-dominant equilibrium is selected. Journal of Economic Literature Classification Numbers C70, C72. 1997 Academic Press