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Comparative dynamics in an overlapping-generations model: the effects of quasi-rational discrete choice on finding and maintaining Nash equilibrium

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  • James Sprigg
  • Mark Ehlen

Abstract

Many models of Nash Equilibrium are complex enough that it becomes difficult to ascertain if and under what conditions the economic players can find and maintain this equilibrium. Using an analytical overlapping- generations model of goods, labor, and banking markets and quasi-rational discrete choice decision making, we find through agent-based simulations that Nash Equilibrium in goods market prices is stable when firms are sufficiently sensitive to changes in profits. In addition to verifying the analytical Nash outcome, the simulations verify that their economic agents, decision rules, and other protocols correspond to and maintain consistency with the analytical theory and identify important bounds of the analytical model. Copyright Springer Science+Business Media, LLC 2007

Suggested Citation

  • James Sprigg & Mark Ehlen, 2007. "Comparative dynamics in an overlapping-generations model: the effects of quasi-rational discrete choice on finding and maintaining Nash equilibrium," Computational Economics, Springer;Society for Computational Economics, vol. 29(1), pages 69-96, February.
    • Handle: RePEc:kap:compec:v:29:y:2007:i:1:p:69-96
    DOI: 10.1007/s10614-006-9081-z
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    More about this item

    Keywords

    Quasi rationality; Discrete choice; Life-cycle hypothesis; Nash equilibrium; Overlapping generations; Agent-based simulation; C62; C63; D91;
    All these keywords.

    JEL classification:

    • C62 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Existence and Stability Conditions of Equilibrium
    • C63 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computational Techniques
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making

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