Assortative Interactions and Endogenous Stratiication

An evolutionary model is used to examine how the presence of strategic risk and exclusion in interactions on the basis of economic class diierences (assortative matching) can explain persistent inequality. A large population of agents is matched asynchronously according to a wealth-weighted probability distribution to play a 2 2 coordination game with a Pareto dominant equilibrium and a risk dominant equilibrium. Best response dynamics eventually select the inferior equilibrium, but with suuciently strong exclusion inequality arises and persists for arbitrarily long nite periods. In particular, For helpful converstions and comments on previous versions I am grateful to Kim-Larry Samuelson for his advice and encouragement. I also thank participants of the 1998 Santa Fe Institute Graduate Workshop in Computational Economics for helpful comments. I am responsible for any remaining errors. 1 exclusion increases the probability that an upper class will arise. In an environment with strategic risk, exclusion helps preserve conndence in the good equilibrium strategy but also perpetuates inequality.