Incomplete Information, Dynamic Stability and the Evolution of Preferences: Two Examples

Abstract

We illustrate general techniques for assessing dynamic stability in games of incomplete information by re-analyzing two models of preference evolution, the Arce (2007) employerworker game and the Friedman and Singh (2009) Noisy Trust game. The techniques include extensions of replicator and gradient dynamics, and for both models they confirm local stability of the key static equilibria. That is, we obtain convergence in time average for initial conditions sufficiently near equilibrium values.

On the cooperative and competitive aspects of strategic monitoring

“…The game illustrated in Table 1 is the principal-agent version of the inspection game, as considered by Moulin (1986), Koford and Penno (1992), Arce (2007) and Rabanal and Friedman (2014), among others. Table 1 represents the strategic form of an agency relationship, meaning that the principal has imperfect information about the actions of the agent (shirk or work) and the agent has imperfect information about the actions of the principal (monitor or not).…”