Fernando Vega-Redondo

The Evolution of Walrasian Behavior

Consider an evolutionary context where a given number of quantity-setting oligopolists tend to mimic successful behavior, occasionally experimenting with some small probability. In this context, it is shown that the unique long-run outcome of the process has all firms playing Walrasian, i.e., choosing an output that maximizes profits when taking the market-clearing price as given.(This abstract was borrowed from another version of this item.)

Optimal network topologies for local search with congestion

The problem of searchability in decentralized complex networks is of great importance in computer science, economy, and sociology. We present a formalism that is able to cope simultaneously with the problem of search and the congestion effects that arise when parallel searches are performed, and we obtain expressions for the average search cost both in the presence and the absence of congestion. This formalism is used to obtain optimal network structures for a system using a local search algorithm. It is found that only two classes of networks can be optimal: starlike configurations, when the number of parallel searches is small, and homogeneous-isotropic configurations, when it is large.

Structural holes in social networks

We consider a setting where every pair of players that undertake a transaction (e.g. exchange goods or information) creates a unit surplus.A transaction can take place only if the players involved have a connection. If the connection is direct the two players split the surplus equally, while if it is indirect then intermediate players also get an equal share of the surplus. Thus, individuals form links with others to create surplus, to gain intermediation rents, and to circumvent others who are trying to become intermediary. Our analysis clarifies the interplay between these forces in the process of strategic network formation. First, we show that, in the absence of capacity constraints on links, it leads to the emergence of a star network where a single agent acts as an intermediary for all transactions and enjoys significantly higher payoffs. Second, we study the implications of capacity constraints in the ability of agents to form links. In this case, distances between players must be long, which induces players who are “far off” to connect in order to avoid paying large intermediation rents. A cycle network then emerges, payoffs being equal across all players.

Network Formation and Social Coordination

This paper develops a simple model to examine the interaction between partner choice and individual behavior in games of coordination. An important ingredient of our approach is the way we model partner choice: We suppose that a player can establish ties with other players by unilaterally investing in costly pair-wise links. In this context, individual efforts to balance the costs and benefits of links are shown to lead to a unique equilibrium interaction architecture. The dynamics of network formation, however, has powerful effects on individual behavior: If costs of forming links are below a certain threshold then players coordinate on the risk-dominant action, while if costs are above this threshold then they coordinate on the efficient action. These findings are robust to a variety of modifications in the link formation process. For example, it may be posited that, in order for a link to materialize, the link proposal must be two-sided (i.e. put forward by both agents); or that, in case of a unilateral proposal, the link may be refused by the other party (if, say, the latters net payoff is negative); or that a pair of agents can play the game even if connected only through indirect links.

On the Evolution of Individualistic Preferences: An Incomplete Information Scenario☆

Abstract We study the evolution of preferences via payoff monotonic dynamics in strategic environments with and without complete information. It is known that, with complete information and subgroup matching, empirically plausible interdependent preference relations may entail the local instability of individualistic preferences (which target directly the maximization of material payoffs/fitness). In contrast, under incomplete information (unobservability of preference types), we show that independent preferences are globally stable in a large set of environments and locally stable in essentially any standard environment, provided that the number of subgroups that form in the society is large. Since these results are obtained within the context of a very general model, they may be thought of as providing an evolutionary rationale for the prevalence of individualistic preferences. Journal of Economic Literature Classification Numbers: C72, D42.

NETWORK FORMATION AND ANTI-COORDINATION GAMES

Abstract.We study a setting in which individual players choose their partners as well as a mode of behavior in 2×2 anti-coordination games – games where a player’s best response is to choose an action unlike that of her partner. We characterize the equilibrium networks as well as study the effects of network structure on individual behavior. Our analysis shows that both network architecture and induced behavior crucially depend on the value of the cost of forming links. In general, equilibrium configurations are found to be neither unique nor efficient.

Convergence of aspirations and (partial) cooperation in the Prisoner's Dilemma

Abstract. This paper proposes an aspiration-based dynamic model for cooperation where a large population of agents are matched afresh every period to play a Prisoners Dilemma. At each point in time, agents hold a common aspiration level which is updated on the basis of some “population statistic”, i.e. a certain scalar summary (e.g. average payoff) associated to the current state. On the other hand, those agents who feel “dissatisfied” (relative to current aspiration) switch actions at a rate which is increasing in the magnitude of the dissatisfaction. The resulting process is shown to converge in the long run under quite general conditions. Moreover, if agents are responsive enough, the long-run social state displays some extent of cooperation, with a constant positive fraction of the population (always less than half) choosing to cooperate in every period.

Error cascades in observational learning: An experiment on the Chinos game

The paper reports an experimental study based on a variant of the popular Chinos game, which is used as a simple but paradigmatic instance of observational learning. There are three players, arranged in sequence, each of whom wins a fixed price if she manages to guess the total number of coins lying in everybody’s hands. Our evidence shows that, despite the remarkable frequency of equilibrium outcomes, deviations from optimal play are also significant. And when such deviations occur, we find that, for any given player position, the probability of a mistake is increasing in the probability of a mistake of her predecessors. This is what we call an error cascade, which we rationalize by way of a simple model of “noisy equilibrium”.

Self-organized evolution in a socioeconomic environment.

We propose a general scenario to analyze technological changes in socio-economic environments. We illustrate the ideas with a model that incorporating the main trends is simple enough to extract analytical results and, at the same time, sufficiently complex to display a rich dynamic behavior. Our study shows that there exists a macroscopic observable that is maximized in a regime where the system is critical, in the sense that the distribution of events follow power laws. Computer simulations show that, in addition, the system always self-organizes to achieve the optimal performance in the stationary state.

Diffusion and growth in an evolving network

We study a simple model of a population of agents whose interaction network co-evolves with knowledge diffusion and accumulation. Diffusion takes place along the current network and, reciprocally, network formation depends on the knowledge profile. Diffusion makes neighboring agents tend to display similar knowledge levels. On the other hand, similarity in knowledge favors network formation. The cumulative nonlinear effects induced by this interplay produce sharp transitions, equilibrium co-existence, and hysteresis, which sheds some light on why multiplicity of outcomes and segmentation in performance may persist resiliently over time in knowledge-based processes.