Adverse Selection, Heterogeneous Beliefs, and Evolutionary Learning

Abstract

We relax the common assumption of homogeneous beliefs in principal-agent relationships with adverse selection. Principals are competitors in the product market and write contracts also on the base of an expected aggregate. The model is a version of a cobweb model. In an evolutionary learning set-up, which is imitative, principals can have different beliefs about the distribution of agents’ types in the population. The resulting nonlinear dynamic system is studied. Convergence to a uniform belief depends on the relative size of the bias in beliefs.

Institutional resilience: how the formal legal system sustains informal cooperation

“…For a symmetric two-strategy game, any updating protocol employed by agents based in some way on payoff differences will lead to the same qualitative results in terms of the existence of equilibria and their stability as summarised in Table 1. For example, this is true for best-response dynamics (Hopkins, 1999), dynamics based on regret comparisons (Lahkar and Sandholm, 2008) or dynamics based on the comparison of realised payoffs rather than expected payoffs (Buchen and Palermo, 2022; Loginov, 2022). In this sense, the results based on the replicator dynamic presented here are more general for the fundamental exchange game under discussion than they might appear.…”