Abstract
We investigate conditions under which self-organized criticality (SOC) arises in a version of a dynamic entry game. In the simplest version of the game, there is a single location-a pool-and one agent is exogenously dropped into the pool every period. Payoffs to entrants are positive as long as the number of agents in the pool is below a critical level. If an agent chooses to exit, he cannot re-enter, resulting in a future payoff of zero. Agents in the pool decide simultaneously each period whether to stay in or not. We characterize the symmetric mixed strategy equilibrium of the resulting dynamic game. We then introduce local interactions between agents that occupy neighboring pools and demonstrate that, under our payoff structure, local interaction effects are necessary and sufficient for SOC and for an associated power law to emerge. Thus, we provide an explicit game-theoretic model of the mechanism through which SOC can arise in a social context with forward looking agents.
Original language | English (US) |
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Pages (from-to) | 1380-1391 |
Number of pages | 12 |
Journal | Journal of Economic Dynamics and Control |
Volume | 34 |
Issue number | 8 |
DOIs | |
State | Published - Aug 2010 |
Externally published | Yes |
Keywords
- Criticality
- Entry Game
- Local interaction
- Power Law
- Self-organization
ASJC Scopus subject areas
- Economics and Econometrics
- Control and Optimization
- Applied Mathematics