The Evolution of Coordination under Inertia∗

This paper models stochastic evolutionary coordination games with inertia driven by switching costs. The mixed-strategy equilibrium is strengthened in this setting, but Kandori, Mailath, and Rob’s (Econometrica 61, 1993, 29-56) long-run selection of the risk-dominant equilibrium continues to hold, even under state-dependent mutations. The key to this is Blume’s (working paper, 1999) “skew-symmetry ” of the noise process, which is shown to be crucial even for simultaneous strategy revisions. Surprisingly, the presence of switching costs can serve to reduce the expected waiting time before the risk-dominant equilibrium is reached, by allowing Ellison’s (Review of Economic Studies 67, 2000, 17-45) “step-by-step ” evolution to occur. Journal of Economic Literature Classification Number: C72