Rationality in Retreat: Imitation Dynamics vs. Best-Response in Volatile Markets

OpenAlex Türkçe

The neoclassical paradigm rests on the assumption that economic agents possess the cognitive capacity to instantaneously identify and adopt best-response strategies, thereby driving markets toward Nash Equilibrium. However, this assumption of hyper-rationality becomes untenable in environments characterized by high-frequency stochastic shocks, where the cost of calculation is non-trivial. This paper investigates the evolutionary stability of two distinct cognitive phenotypes—rational optimizers (who pay a cognitive cost to maximize expected utility) and imitators (who costlessly adopt the prevailing strategy of successful peers) within a stochastic evolutionary game framework. By coupling replicator dynamics with a regime-switching payoff matrix, the paper demonstrates a counterintuitive volatility paradox. While rational optimizers dominate in static or low-variance environments, volatility above a critical threshold destabilizes the rational equilibrium. In high-turbulence regimes, the speed of heuristic adaptation (imitation) yields a higher survival probability than the precision of calculation, effectively rendering herd behavior an evolutionarily stable strategy (ESS). The paper further analyzes bifurcation points at which the population transitions from a monomorphic rational state to a polymorphic equilibrium, providing a theoretical foundation for the persistence of bounded rationality in complex financial markets.