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Title:Log-linear dynamics and local potential PDF Logo
Authors:Okada, Daijiro
Tercieux, Olivier
Issue Date:2008
Series/Report no.:Working Papers, Department of Economics, Rutgers, the State University of New Jersey 2008,07
Abstract:We show that local potential maximizer ([15]) with constant weights is stochastically stable in the log-linear dynamics provided that the payoff function or the associated local potential function is supermodular. We illustrate and discuss, through a series of examples, the use of our main results as well as other concepts closely related to local potential maximizer: weighted potential maximizer, p-dominance. We also discuss the log-linear processes where each player's stochastic choice rule converges to the best response rule at different rates. For 2 x 2 games, we examine a modified log-linear dynamics (relative log-linear dynamics) under which local potential maximizer with strictly positive weights is stochastically stable. This in particular implies that for 2 x 2 games a strict (p1,p2)-dominant equilibrium with p1+p2<1 is stochastically stable under the new dynamics.
Subjects:log-linear dynamics
stochastic stability
local potential maximizer
equilibrium selection
comparison of Markov chains
JEL:C72
C73
Document Type:Working Paper
Appears in Collections:Working Papers, Department of Economics, Rutgers University

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