Abstract
We survey the recent literature on coordination games, where there is a conflictbetween risk dominance and payoff dominance. Our main focus is on models of local interactions, where players only interact with small subsets of the overall population rather than with society as a whole. We use Ellison’s [1] Radius-Coradius Theorem to present prominent results on local interactions. Amongst others, we discuss best reply learning in a global- and in a local- interaction framework and best reply learning in multiple location models and in a network formation context. Further, we discuss imitation learning in a localandin a global- interactions setting.
Highlights
One of the main assumptions in economics and especially of large population models is that economic agents interact globally
This paper aims at providing a detailed overview of the answers models of local interaction can give to the question which equilibrium will be adopted in the long run
The basic reason for these results is that under imitation rules risk minimizing considerations cease to play an important role. The remainder of this survey is structured in the following way: Section 2 introduces the basic framework of global interaction and the techniques used to find the long run equilibrium
Summary
One of the main assumptions in economics and especially of large population models is that economic agents interact globally. That as risk dominant or 21 -dominant strategies are able to spread from a small subset the speed of convergence is independent of the population size This in turn implies that that models of local interactions in general maintain their predictive power in large populations, essentially challenging the first critique, mentioned beforehand. The basic reason for these results is that under imitation rules risk minimizing considerations (which favor risk dominance strategies under best reply) cease to play an important role The remainder of this survey is structured in the following way: Section 2 introduces the basic framework of global interaction and the techniques used to find the long run equilibrium.
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