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The importance of higher-order beliefs to successful coordination

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  • Steven J. Bosworth

    (Kiel Institute for the World Economy)

Abstract

Beliefs about other players’ strategies are crucial in determining outcomes for coordination games. If players are to coordinate on an efficient equilibrium, they must believe that others will coordinate with them. In many settings there is uncertainty about beliefs as well as strategies. Do people consider these “higher-order” beliefs (beliefs about beliefs) when making coordination decisions? I design a modified stag hunt experiment that allows me to identify how these higher-order beliefs and uncertainty about higher-order beliefs matter for coordination. Players prefer to invest especially when they believe that others are “optimistic” that they will invest; but knowledge that others think them unlikely to invest does not cause players to behave differently than when they do not know what their partners think about them. Thus resolving uncertainty about beliefs can result in marked efficiency gains.

Suggested Citation

  • Steven J. Bosworth, 2017. "The importance of higher-order beliefs to successful coordination," Experimental Economics, Springer;Economic Science Association, vol. 20(1), pages 237-258, March.
    • Handle: RePEc:kap:expeco:v:20:y:2017:i:1:d:10.1007_s10683-016-9483-2
    DOI: 10.1007/s10683-016-9483-2
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    4. Jiang, Bing & Pan, Xiaofei, 2023. "An anger premium: An experiment on the role of counterpart emotions in coordination," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 103(C).

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