Endogenous Interactions

We examine an evolutionary model with "local interactions," so that agents are more likely to interact with some agents than with others. We first review the result that equilibrium strategy choices with given local interactions correspond to correlated equilibria of the underlying game. We then allow the pattern of interactions itself to be shaped by evolutionary pressures. If agents do not have the ability to avoid unwanted interactions, then heterogeneous outcomes can appear, including outcomes in which different groups play different Pareto ranked equilibria. If agents do have the ability to avoid undesired interactions, then we derive conditions under which outcomes must be not only homogeneous but efficient.