Christos A. Ioannou

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Job Market Paper

Strategy, Structure And Noise

Abstract - A model of learning and adaptation is used to simulate the co-evolution of strategies in the repeated Prisoner's Dilemma stage-game. In contrast to previous simulations that assumed perfect informational accuracy, the
agents' strategies are prone to two types of errors: (a) implementation errors, and (b) perception errors. The impact of these errors on the agents' strategies is examined under several computational conditions. The computations indicate that the incorporation of errors may alter the evolutionary structure of the agents' strategies and result in non-cooperative outcomes that are nevertheless, amenable to changes in the environmental factors. In the presence of errors, agents tend to develop relatively simpler strategies (rules of thumb) that display both, low cooperation-reciprocity and low tolerance to defections. The proposed framework suggests that the general methodology may be broadened to encompass a much wider range of phenomena in economic and social systems.[Paper]

Instead of a world of near-identical actors, coolly assessing their economic interests and acting with clear-eyed precision, he sees a world (and markets) governed by passion, bias and self-reinforcing errors. Because fallible human beings are both involved in, and trying to make sense of this world, they inevitably make mistakes. Those mistakes then feed on themselves in reflexive ways that, when taken to extremes, result in situations such as the now-deflating U.S. housing bubble.

Excerpt from the Man Who Would Be A Philosopher King; George Soros
USA Today, May 13, 2008.
 

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Email: ioannou@umn.edu