The evolution of exchange

Abstract Stochastic stability is applied to the problem of exchange. We analyze the stochastic stability of two dynamic trading processes in a simple housing market. In both models, traders meet in pairs at random and exchange their houses when trade is mutually beneficial, but occasionally they make mistakes. The models differ in the probability of mistakes. When all mistakes are equally likely, the set of stochastically stable allocations contains the set of efficient allocations. When more serious mistakes are less likely, the stochastically stable states are those allocations, always efficient, with the lowest envy level.

[1]  Hervé Moulin,et al.  A New Solution to the Random Assignment Problem , 2001, J. Econ. Theory.

[2]  R. Rob,et al.  Learning, Mutation, and Long Run Equilibria in Games , 1993 .

[3]  H. Young.  An Evolutionary Model of Bargaining , 1993 .

[4]  Peter Secretan.  Learning , 1965, Mental Health.

[5]  Larry Samuelson,et al.  An Evolutionary Analysis of Backward and Forward Induction , 1993 .

[6]  H. Young.  Individual Strategy and Social Structure , 2020 .

[7]  Barton L. Lipman,et al.  Evolution with State-Dependent Mutations , 1996 .

[8]  H. Young,et al.  Individual Strategy and Social Structure: An Evolutionary Theory of Institutions , 1999 .

[9]  Atila Abdulkadiroglu,et al.  RANDOM SERIAL DICTATORSHIP AND THE CORE FROM RANDOM ENDOWMENTS IN HOUSE ALLOCATION PROBLEMS , 1998 .

[10]  H. Young,et al.  The Evolution of Conventions , 1993 .

[11]  H. Peyton Young,et al.  Stochastic Evolutionary Game Dynamics , 1990 .

[12]  Matthew O. Jackson,et al.  On the formation of interaction networks in social coordination games , 2002, Games Econ. Behav..

[13]  R. Starr,et al.  PAIRWISE, t-WISE, AND PARETO OPTIMALITIES , 1982 .

[14]  A. Feldman,et al.  Bilateral Trading Processes, Pairwise Optimality, and Pareto Optimality1 , 1989 .

[15]  A. Feldman,et al.  Bilateral Trading Processes, Pairwise Optimally, and Pareto Optimality , 1973 .

[16]  Glenn Ellison.  Learning, Local Interaction, and Coordination , 1993 .

[17]  Sergiu Hart,et al.  Evolutionary dynamics and backward induction , 2002, Games Econ. Behav..

[18]  F. Vega-Redondo.  The evolution of Walrasian behavior , 1997 .

[19]  L. Shapley,et al.  On cores and indivisibility , 1974 .

[20]  M. Freidlin,et al.  Random Perturbations of Dynamical Systems , 1984 .