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When are Nash equilibria self-enforcing? An experimental analysis

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  • Kenneth Clark

    (School of Economic Studies, Faculty of Economic and Social Studies, Dover Street, University of Manchester, Manchester M13 9PL.)

  • Stephen Kay

    (School of Economic Studies, Faculty of Economic and Social Studies, Dover Street, University of Manchester, Manchester M13 9PL.)

  • Martin Sefton

    (School of Economic Studies, Faculty of Economic and Social Studies, Dover Street, University of Manchester, Manchester M13 9PL.)

Abstract

We investigate the effect of non-binding pre-play communication in experiments with simple two-player coordination games. We reproduce the results of other studies in which play converges to a Pareto-dominated equilibrium in the absence of communication, and communication moves outcomes in the direction of the Pareto-dominant equilibrium. However, we provide new results which show that the effectiveness of communication is sensitive to the structure of payoffs. Our results support an argument put forward by Aumann: agreements to play a Nash equilibrium are fragile when players have a strict preference over their opponent's strategy choice. We also find that informative communication does not necessarily lead to the Pareto-dominant equilibrium.

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Bibliographic Info

Article provided by Springer in its journal International Journal of Game Theory.

Volume (Year): 29 (2001)
Issue (Month): 4 ()
Pages: 495-515

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Handle: RePEc:spr:jogath:v:29:y:2001:i:4:p:495-515

Note: Received: January 1997/Revised version: February 1997
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  1. Farrell, Joseph, 1988. "Communication, coordination and Nash equilibrium," Economics Letters, Elsevier, vol. 27(3), pages 209-214.
  2. Jose Luis Ferreira, 1990. "A Communication-Proof Equilibrium Concept," Discussion Papers 896, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  3. Harsanyi, John C., 1995. "A new theory of equilibrium selection for games with complete information," Games and Economic Behavior, Elsevier, vol. 8(1), pages 91-122.
  4. Bernheim, B. Douglas & Peleg, Bezalel & Whinston, Michael D., 1987. "Coalition-Proof Nash Equilibria I. Concepts," Journal of Economic Theory, Elsevier, vol. 42(1), pages 1-12, June.
  5. Roth, Alvin E, 1980. "Values for Games without Sidepayments: Some Difficulties with Current Concepts," Econometrica, Econometric Society, vol. 48(2), pages 457-65, March.
  6. Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, vol. 80(1), pages 218-33, March.
  7. COOPER, R. & DEJONG, D.V. & FORSYTHE, R. & Tom Ross, 1989. "Communication In Coordination Games," Carleton Industrial Organization Research Unit (CIORU) 89-07, Carleton University, Department of Economics.
  8. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, December.
  9. Cooper, Russell, et al, 1992. "Communication in Coordination Games," The Quarterly Journal of Economics, MIT Press, vol. 107(2), pages 739-71, May.
  10. Joseph Farrell & Matthew Rabin, 1996. "Cheap Talk," Journal of Economic Perspectives, American Economic Association, vol. 10(3), pages 103-118, Summer.
  11. Straub, Paul G., 1995. "Risk dominance and coordination failures in static games," The Quarterly Review of Economics and Finance, Elsevier, vol. 35(4), pages 339-363.
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