Conventions - Some Conventional and Some Not So Conventional Wisdom

In this paper we consider conventions as regularities in behavior which help to solve coordinationproblems in a society. These problems can be formalized as non-cooperative games with severalequilibria. We know that in such situations serious problems of equilibrium selection arise whichcannot be solved by traditional game theoretical reasoning. Conventions seem to be a powerful tool tosolve equilibrium selection problems in real world societies. Essentially, two questions will beaddressed in this paper: a) Which conventions will emerge in a society? b) How can a society breakaway from an inferior and reach a superior convention? It turns out that “risk dominance” of aconvention plays a crucial role in dealing with both questions and generally in the evolution ofconventions.