A Note on Risk Aversion and Evolution to Equilibrium in 2x2 Coordination Games

Suren Basov, La Trobe University
Murali Agastya, University of Sydney

Abstract

In this note we point out the effect of risk-aversion on both the speed of deterministic convergence and the waiting times involved in equilibrium selection in 2 X 2 coordination games. Risk-aversion destabilizes the Pareto optimal equilibrium in two different ways: it decreases the size of its basin of attraction and slows the rate of deterministic convergence within its basin of attraction. It turns out that the first effect is quite significant: moderate levels of risk aversion are enough even in large populations to lead the system from the Pareto Optimal equilibrium to a risk-dominant equilibrium after just one mutation.