Conventions: Some Conventional and Some Not So Conventional Wisdom

Problems of social coordination can be formalized as non-cooperative games with several equilibria. We know that in such situations serious problems of equilibrium selection arise which cannot be solved by traditional game theoretical reasoning. Conventions seem to be a powerful tool to solve equilibrium selection problems in real world societies. Essentially, two questions will be addressed in this paper: (a) Which conventions will emerge in a society? (b) How can a society break away from an inferior and reach a superior convention? It turns out that “risk dominance” of a convention plays a crucial role in dealing with both questions and generally in the evolution of conventions.