| "Three Essays on Learning and Evolution in Economic Theory", advised by Professor Drew Fudenberg, examines a variety of issues regarding the effects of learning or evolutionary behavior in economics. The first study analyzes evolutionary models with partial adjustment in a game-theoretic setting. It is assumed that bounded rationality or costs of adjustments prevent players from responding optimally to their opponents' expected behavior, along the lines of the formulation of Kandori, Mailath and Rob (1993). The usual formulation assumes that players face the same game in every period, and concludes that only risk-dominant equilibria are observed in the presence of unlikely random behavior by players. In actual economic settings, agents draw inferences from past situations that are similar to the one they currently face, but not identical to it. The study concludes that similarities must be accounted for in the concept of risk-dominance in order for that result to follow. The effects of long memories and varying degrees of similarities are examined as well.;The other two studies concentrate on models of learning with word-of-mouth communication of the kind studied by Ellison and Fudenberg (1995). Situations where the average quality differential between two products is not fUlly known to consumers are examined. Consumers would like to learn about this quality differential, but this information is not directly available to them. They therefore attempt to draw inferences from the level of satisfaction of other consumers. The central issue of both studies is whether consumers are eventually able to identify the superior product.;The effects of quality improvement and price competition in this setting are analyzed. It is shown that competition between firms leads to a research and development race, from which all consumers benefit. However, learning by consumers drives the lower-quality product out of the market, thereby eliminating the incentive for R&D. In addition, it is possible that the learning process may lead to herding behavior around the inferior product, a clearly inferior outcome. However, price competion will enable the laggard in quality to offset technological disadvantages, at least partially. |
