Conventions

Definition

In game theory, conventions refer to the established norms or agreements among players that help coordinate their actions in strategic situations. These shared expectations can lead to multiple equilibria, where different outcomes may be stable depending on the conventions adopted by the players involved. Understanding conventions is crucial for equilibrium selection, as they can determine which equilibrium will be chosen when multiple possibilities exist.

5 Must Know Facts For Your Next Test

1. Conventions can facilitate cooperation among players by establishing predictable behavior, which reduces uncertainty in decision-making.
2. The success of a convention often relies on its ability to be self-reinforcing; once established, it becomes increasingly difficult for players to switch to another equilibrium.
3. Different conventions may lead to different stable outcomes, demonstrating that context and history play significant roles in equilibrium selection.
4. The concept of conventions highlights the importance of communication and signaling between players, as these elements can help establish common understanding and expectations.
5. In games with multiple equilibria, players may converge on a particular equilibrium due to historical precedence or social norms that make certain strategies more appealing.

Review Questions

• How do conventions impact player decisions in games with multiple equilibria?
  • Conventions significantly influence player decisions by providing a framework for expected behavior in strategic interactions. In games with multiple equilibria, players often rely on these established norms to decide which equilibrium to adopt. This reliance helps them avoid confusion and coordinate their actions effectively, leading to more predictable outcomes based on the shared understanding of how others are likely to act.
• Discuss the role of communication in establishing conventions among players in coordination games.
  • Communication plays a vital role in establishing conventions among players in coordination games. By exchanging information about intentions or preferences, players can align their strategies and reinforce the adoption of a particular convention. This interaction fosters trust and reduces ambiguity, making it easier for players to coordinate their actions and achieve mutually beneficial outcomes based on the established norms.
• Evaluate the implications of convention-based equilibrium selection on economic behavior and policy-making.
  • Convention-based equilibrium selection has significant implications for economic behavior and policy-making because it illustrates how social norms and established practices shape decision-making processes. When policymakers understand the conventions that guide player behavior, they can design incentives and regulations that align with those norms. This alignment can enhance cooperation among individuals and organizations, ultimately leading to more efficient outcomes and improved public policies that reflect the existing conventions in society.

Related terms

Equilibrium: A state in a game where all players choose strategies that are best responses to one another, resulting in no player having an incentive to deviate.

Coordination Game: A type of game where players benefit from making the same choices or adopting the same strategies, often relying on conventions to achieve the best outcome.

Pareto Efficiency: An outcome is Pareto efficient if no player can be made better off without making at least one other player worse off; conventions can influence whether equilibria reach this efficiency.