Self-organized criticality in a dynamic game

Andreas Blume, John Duffy, Ted Temzelides

Research output: Contribution to journalArticlepeer-review

2 Scopus citations

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 languageEnglish (US)
Pages (from-to)1380-1391
Number of pages12
JournalJournal of Economic Dynamics and Control
Volume34
Issue number8
DOIs
StatePublished - Aug 2010

Keywords

  • Criticality
  • Entry Game
  • Local interaction
  • Power Law
  • Self-organization

ASJC Scopus subject areas

  • Economics and Econometrics
  • Control and Optimization
  • Applied Mathematics

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