Markets, correlation, and regret-matching

Inspired by the existing work on correlated equilibria and regretbased dynamics in games, we carry out a first exploration of the links between the leading equilibrium concept for (exchange) economies, Walrasian equilibrium, and the dynamics, specifically regret-matching dynamics, of trading games that fit the economic structure and have the property that their pure Nash equilibria implement the Walrasian outcomes. Interestingly, in the case of quasilinear utilities (or “transferable utility”), all the concepts essentially coincide, and we get simple deterministic dynamics converging to Walrasian outcomes. Connections to sunspot equilibria are also studied. Previous versions: December 2009; September 2013 (Center for Rationality DP648), September 2014. We thank Yakov Babichenko, Elchanan Ben-Porath, Eddie Dekel, Françoise Forges, Gil Kalai, Yishay Mansour, Yusufcan Masatlioglu, Uri Nadav, and Noam Nisan, for useful comments and discussions. We also thank the anonymous referees for their very careful reading of the paper and their insightful suggestions. Research of the first author was partially supported by an Advanced Investigator Grant of the European Research Council (ERC). Federmann Center for the Study of Rationality, Department of Economics, and Einstein Institute of Mathematics, The Hebrew University of Jerusalem, Feldman Building, Givat Ram, 9190401 Jerusalem, Israel. Email : [email protected] Web site: http://www.ma.huji.ac.il/hart Department of Economics and Business, Universitat Pompeu Fabra, and Barcelona Graduate School of Economics, Ramon Trias Fargas 25-27, 08005 Barcelona, Spain. Email : [email protected]