Potential games in volatile environments

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Abstract

This paper studies the co-evolution of networks and play in the context of finite population potential games. Action revision, link creation and link destruction are combined in a continuous-time Markov process. I derive the unique invariant distribution of this process in closed Form, as well as the marginal distribution over action profiles and the conditional distribution over networks. It is shown that the equilibrium interaction topology is an inhomogeneous random graph. Furthermore, a characterization of the set of stochastically stable states is provided, generalizing existing results to models with endogenous interaction structures. 

Original languageEnglish
Pages (from-to)271-287
Number of pages17
JournalGames and Economic Behavior
Volume72
Issue number1
DOIs
Publication statusPublished - May 2011
Externally publishedYes

Keywords

  • Markov process
  • Potential game
  • Stochastic stability
  • Network co-evolution
  • Random graphs
  • SOCIAL COORDINATION
  • EQUILIBRIA
  • EVOLUTION
  • NETWORKS
  • DYNAMICS
  • MODEL

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