Conventions: An evolutionary approach

Conventions are social institutions that solve recurrent coordination problems. In normative game theory, coordination games are considered problematic because of the multiplicity of equilibria. From a neoinstitutionalist perspective, however, this multiplicity should be an important part of the explanation of real-world institutions. The paper discusses the evolutionary (or “positive”) game-theoretical approach to the emergence of conventions. I note a precise sense in which conventions may be said to minimize transaction costs, but that they need not be efficient. Example applications to language, money, and the theory of the firm are discussed.