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A Note on Purifying Mixed Strategy Equilibria in the Search Model of Money


The simple search-theoretic model of fiat money has three symmetric Nash equilibria: all agents accept money with probability 1; all agents accept money with probability 0; and all agents accept money with probability y ∈ (0,1). Here we construct a nonsymmetric pure strategy equilibrium, payoff-equivalent to the symmetric mixed strategy equilibrium, where a fraction N ∈ (0,1) of agents always accept money and 1-N never accept money. Count to what has been conjectured previously, we find N>y. We also study evolutionary dynamics, and show that the economy converges to monetary exchange if the initial proportion of agents accepting money exceeds N.


Suggested citation: Wright, Randall, 1997. “A Note on Purifying Mixed Strategy Equilibria in the Search Model of Money,” Federal Reserve Bank of Cleveland, Working Paper no. 97-09.

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