When are efficient conventions selected in networks?

Alós-Ferrer, C., Buckenmaier, J. and Farolfi, F. (2021) When are efficient conventions selected in networks? Journal of Economic Dynamics and Control, 124, 104074. (doi: 10.1016/j.jedc.2021.104074)

Abstract

We study the determinants of convergence to efficient conventions in coordination games played on networks, when agents focus on past performance (imitative play). Previous theoretical results provide an incomplete picture and suggest potentially-complex interactions between the features of dynamics and behavior. We conducted an extensive simulation study (with approximately 1.12 million simulations) varying network size, interaction and information radius, the probability of actual interaction, the probability of mistakes, tie-breaking rules, and the process governing revision opportunities. Our main result is that “more interactions,” be it in the form of larger interaction neighborhoods or of a higher interaction probability, lead to less coordination on efficient conventions. A second observation, confirming previous but partial theoretical results, is that a large network size relative to the size of neighborhoods (a “large world”) facilitates convergence to efficient conventions. Third, a larger information neighborhood helps efficiency because it increases visibility of efficient payoffs across the network. Last, technical details of the dynamic specification as tie-breaking or inertia, while often relevant for specific theoretical results, appear to be of little empirical relevance in the larger space of dynamics.

• Item Type: Articles
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Farolfi, Dr Federica
• Authors: Alós-Ferrer, C., Buckenmaier, J., and Farolfi, F.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of Economic Dynamics and Control
• Publisher: Elsevier
• ISSN: 0165-1889
• ISSN (Online): 1879-1743
• Published Online: 23 January 2021
• Copyright Holders: Copyright © 2021 The Author(s)
• First Published: First published in Journal of Economic Dynamics and Control 124:104074
• Publisher Policy: Reproduced under a creative commons licence