Evolution and Walrasian Behavior in Market Games

Joint with: Alexander Matros

We revisit the question of price formation in general equilibrium theory. We explore whether evolutionary forces lead toWalrasian equilibrium in the context of a market game, introduced by Shubik (1972). Market games have Pareto inferior (strict) Nash equilibria, in which some, and

possibly all, markets are closed. We introduce a strong version of evolutionary stable strategies (SESS) for finite populations. Our concept requires stability against deviations by coalitions of agents. We show that a

small coalition of trading agents is sufficient for Pareto improving trade to be generated. In addition, provided that agents lack market power, Nash equilibria corresponding to approximate Walrasian equilibria constitute the only approximate SESS.

For more information, contact Felix Kubler.