Binary games with state dependent stochastic choice (Q1601452)

In this paper is studied a stochastic equilibrium selection model for binary coordination games. Adopting the process model introduced by Blume, in particular are considered a large class of probabilistic choice behavior. The main result of the paper contained in the Theorem 4.2 shows that selection outcome for a linear coordination game is determined by the balance of the risk dominance, the aspiration/imitation, and the externality effects. It is also shown the way these effects together determine the outcome.