Path dependence and learning from neighbors

We study the long-run properties of a class of locally interactive learning systems. A finite set of players at fixed locations play a two-by-two symmetric normal form game with strategic complementarities, with one of their ''neighbors'' selected at random. Because of the endogenous nature of experimentation, or ''noise,'' the systems we study exhibit a high degree of path dependence. Different actions of a pure coordination game may survive in the long-run at different locations of the system. A reinterpretation of our results shows that the local nature of search may be a robust reason for price dispersion in a search model. (C) 1996 Academic Press, Inc.