Evolutionary Dynamics of the Transitions across the Nash equilibria of a Tacit Coordination Game

Abstract
We investigate evolutionary adaptation in a repeated coordination game with strategic uncertainty. The game is characterized by multiplicity of stationary and cyclical Nash equilibria. Monomorphic equilibria of the game are neutrally stable. The results of simulations in which players use the genetic algorithm to update their strategies show that, regardless of the number of players that participate in the game, any equilibrium can be reached. However, the time spent in high effort equilibria is negatively related to the number of players. Finally, regardless of the group size, players play best response actions most of the time. The dynamics of our model capture the main features of the behavior observed in the experiments with human subjects. As the evolutionary dynamics generate persistent fluctuations in the level of effort, these results are also relevant for macroeconomic models with strategic complementarities where fluctuations in economic activity can occur as a result of shifts in agents' expectations.