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Houba, Harold
Tieman, Alexander F.
Year of Publication: 
Series/Report no.: 
Tinbergen Institute Discussion Paper 01-041/1
We extend the standard evolutionary model of Kandori, Mailath, andRob (1993) to incorporate time-varying aggregate and idiosyncraticshocks separately in coordination games.We show that both types of shocks have a different effect on theinvariant distribution over the different equilibria of dthe game.While idiosyncratic shocks are shown to be neutral, the aggregateshocks introduce a systematic bias against the risk dominantequilibrium.Different from Kandori, Mailath, and Rob (1993) we derive a sufficient conditionunder which this bias prevents equilibrium selection with probability one.
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Working Paper

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