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Working Paper

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

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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 ε (0,1). Here we construct a nonsymmetric pure strategy equilibrium, payoff-equivalent to the symmetric mixed strategy equilibrium, where a fraction N ε (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.
09.01.1997ISSN 2573-7953 WP 97-09DOI 10.26509/frbc-wp-199709

Working Papers of the Federal Reserve Bank of Cleveland are preliminary materials circulated to stimulate discussion and critical comment on research in progress. They may not have been subject to the formal editorial review accorded official Federal Reserve Bank of Cleveland publications. The views expressed in this paper are those of the authors and do not represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System.

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. https://doi.org/10.26509/frbc-wp-199709