2004/17 | LEM Working Paper Series | |
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Minority Games, Local Interactions, and Endogenous Networks |
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Giorgio Fagiolo, Marco Valente |
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Keywords | ||
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Minority Games, Local Interactions, Endogenous Networks, Adaptive Agents.
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JEL Classifications | ||
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C72, C73
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Abstract | ||
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In this paper we study a local version of the Minority Game where
agents are placed on the nodes of a directed graph. Agents care about being
in the minority of the group of agents they are currently linked to and
employ myopic best-reply rules to choose their next-period state. We show
that, in this benchmark case, the smaller the size of local networks, the
larger long-run population-average payoffs. We then explore the collective
behavior of the system when agents can: (i) assign weights to each link they
hold and modify them over time in response to payoff signals; (ii) delete
badly-performing links (i.e. opponents) and replace them with randomly
chosen ones. Simulations suggest that, when agents are allowed to weight
links but cannot delete/replace them, the system self-organizes into
networked clusters which attain very high payoff values. These clustered
configurations are not stable and can be easily disrupted, generating huge
subsequent payoff drops. If however agents can (and are sufficiently willing
to) discard badly performing connections, the system quickly converges to
stable states where all agents get the highest payoff, independently of the
size of the networks initially in place.
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