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Measuring Strategic Uncertainty in Coordination Games

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  • Frank Heinemann
  • Rosemarie Nagel
  • Peter Ockenfels

Abstract

This paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries. We apply this method by conducting experiments on a class of one-shot coordination games with strategic complementarities and choices between simple lotteries and sure payoff alternatives, both framed in a similar way. Despite the multiplicity of equilibria in the coordination games, aggregate behaviour is fairly predictable. The pure or mixed Nash equilibria cannot describe subjects' behaviour. We present two global games with private information about monetary payoffs and about risk aversion. While previous literature treats the parameters of a global game as given, we estimate them and show that both models describe observed behaviour well. The global-game selection for vanishing noise of private signals offers a good recommendation for actual players, given the observed distribution of actions. We also deduce subjective beliefs and compare them with objective probabilities. Copyright , Wiley-Blackwell.

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Bibliographic Info

Article provided by Oxford University Press in its journal The Review of Economic Studies.

Volume (Year): 76 (2009)
Issue (Month): 1 ()
Pages: 181-221

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Handle: RePEc:oup:restud:v:76:y:2009:i:1:p:181-221

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  3. Schmidt, David & Shupp, Robert & Walker, James M. & Ostrom, Elinor, 2003. "Playing safe in coordination games:: the roles of risk dominance, payoff dominance, and history of play," Games and Economic Behavior, Elsevier, Elsevier, vol. 42(2), pages 281-299, February.
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  10. Rosemarie Nagel & Antonio Cabrales & Roc Armenter, 2002. "Equilibrium selection through incomplete information in coordination games: An experimental study," Economics Working Papers, Department of Economics and Business, Universitat Pompeu Fabra 601, Department of Economics and Business, Universitat Pompeu Fabra.
  11. Carlsson, Hans & van Damme, Eric, 1993. "Global Games and Equilibrium Selection," Econometrica, Econometric Society, Econometric Society, vol. 61(5), pages 989-1018, September.
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  14. Christian Hellwig, 2002. "Imperfect Common Knowledge of Preferences in Global Coordination Games (October 2002)," UCLA Economics Online Papers, UCLA Department of Economics 211, UCLA Department of Economics.
  15. Berninghaus, Siegfried K. & Ehrhart, Karl-Martin, 2001. "Coordination and information: recent experimental evidence," Economics Letters, Elsevier, Elsevier, vol. 73(3), pages 345-351, December.
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