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A new paper by Assistant Professor of Economics Erik Lillethun uses evolutionary game theory to study a long-standing question in economics: when multiple equilibria are possible, including one with unambiguously higher payoffs, which equilibrium will survive in the long run? The paper, “,” has been published in Games and Economic Behavior.

The analysis allows individuals to differ in their personal preferences and to choose the neighborhoods in which they interact. When preferences are aligned or exhibit mutual homophily — meaning that different types are content to segregate — only the high-payoff equilibrium survives in the long run. When preferences instead combine homophily and heterophily, segregation cannot be sustained, and both the high- and low-payoff equilibria can persist. The findings show that long-run efficiency depends not only on the payoffs generated by an equilibrium, but also on how individual preferences influence local interaction patterns.