Intuition and experience indicate that individuals use language to solve strategic problems, but the Nash equilibrium, the principal solution concept used in non-cooperative game theory, does not provide a sensible framework in which meaningful communication can arise. The principal goal of this project is to rigorously define where players will use communication to arrive at more efficient outcomes and where communication will fail to improve the outcome. The project investigates the idea that if communication is possible, then methods of communication evolve and prevent players from playing inefficient equilibria. The study uses the concept of evolutionarily stable strategies (ESS). It goes beyond earlier work because it does not assume that language has a focal meaning but allows the meaning of words to arise as part of an evolutionarily stable equilibrium. Evolutionarily stable strategies fail to exist in many games. The project explores alternative definitions of evolutionarily stable equilibria that plausibly capture the dynamics of evolving non-cooperative systems with communication. The outcomes of communication in games in which agents have private information are studied. A new general model of signalling games is developed. This project develops a general framework for rigorously analyzing the way communication influences bargaining among rational economic agents with incomplete information. The results should provide new insights into a wide range of important economic problems. This work extends previous research by the investigator on oligopoly theory, tax policy, organizational design and litigation. The development of alternative general concepts of evolutionarily stable equilibrium could prove useful eventually to mathematical biology. The research on the evolution of language could make a contribution to linguistics.
