Competing conventions

Abstract

This paper introduces a new coordination problem for a large but finite population – The Language Game. The population is partitioned into two groups of identical agents. Each player shares a common two-action strategy set and interacts pairwise with everyone else. Both symmetric profiles are Pareto-efficient strict equilibria, but the groups rank them differently. The profile where successful coordination occurs only within-group, with each group adopting their most preferred equilibrium action, is also an equilibrium provided the smaller groupʼs preferences are sufficiently strong. In all dynamically stable long-run outcomes, players in the same group adopt the same action. Three properties, that do not matter for equilibrium selection in standard homogeneous agent models, do matter in the Language Game. These are: group size, strength of group preferences, and rates of group adaptiveness (“group dynamism”). A relative increase in group size and group dynamism is always weakly beneficial.