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Potential Maximization And Coalition Government Formation

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  • ROD GARRATT

    ()
    (University of California, Santa Barbara, Department of Economics, Santa Barbara, CA 93106, USA)

  • JAMES E. PARCO

    (United States Air Force Academy, Department of Management, Colorado Springs, CO 80840, USA)

  • CHENG-ZHONG QIN

    (University of California, Santa Barbara, Department of Economics, Santa Barbara, CA 93106, USA)

  • AMNON RAPOPORT

    (University of Arizona, Department of Management and Policy, Tucson, AZ 85721, USA; Department of Economics, Hong Kong University of Science and Technology, China)

Abstract

A model of coalition government formation is presented in which inefficient, non-minimal winning coalitions may form in Nash equilibrium. Predictions for five games are presented and tested experimentally. The experimental data support potential maximization as a refinement of Nash equilibrium. In particular, the data support the prediction that non-minimal winning coalitions occur when the distance between policy positions of the parties is small relative to the value of forming the government. These conditions hold in games 1, 3, 4 and 5, where subjects played their unique potential-maximizing strategies 91, 52, 82 and 84 percent of the time, respectively. In the remaining game (Game 2) experimental data support the prediction of a minimal winning coalition. Players A and B played their unique potential-maximizing strategies 84 and 86 percent of the time, respectively, and the predicted minimal-winning government formed 92 percent of the time (all strategy choices for player C conform with potential maximization in Game 2). In Games 1, 2, 4 and 5 over 98 percent of the observed Nash equilibrium outcomes were those predicted by potential maximization. Other solution concepts including iterated elimination of weakly dominated strategies and strong/coalition-proof Nash equilibrium are also tested.

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Bibliographic Info

Article provided by World Scientific Publishing Co. Pte. Ltd. in its journal International Game Theory Review.

Volume (Year): 07 (2005)
Issue (Month): 04 ()
Pages: 407-429

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Handle: RePEc:wsi:igtrxx:v:07:y:2005:i:04:p:407-429

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Related research

Keywords: Coalition formation; potential maximization; Nash equilibrium refinements; experimental study; minimal winning; JEL Classification: C72; JEL Classification: C78; JEL Classification: D72;

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  1. J. Keith Murnighan & Alvin E. Roth, 1977. "The Effects of Communication and Information Availability in an Experimental Study of a Three-Person Game," Management Science, INFORMS, vol. 23(12), pages 1336-1348, August.
  2. Slikker, M., 1999. "Coalition Formation and Potential Games," Discussion Paper 1999-83, Tilburg University, Center for Economic Research.
  3. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  4. Slikker, M. & Dutta, B. & Tijs, S.H. & Nouweland, C.G.A.M. van den, 2000. "Potential maximizers and network formation," Open Access publications from Tilburg University urn:nbn:nl:ui:12-84647, Tilburg University.
  5. repec:ebl:ecbull:v:3:y:2003:i:12:p:1-11 is not listed on IDEAS
  6. Qin, Cheng-Zhong, 1996. "Endogenous Formation of Cooperation Structures," Journal of Economic Theory, Elsevier, vol. 69(1), pages 218-226, April.
  7. repec:ebl:ecbull:v:3:y:2003:i:5:p:1-9 is not listed on IDEAS
  8. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
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Cited by:
  1. J. Atsu Amegashie & C. Bram Cadsby & Yang Song, 2005. "Competitive Burnout: Theory and Experimental Evidence," Working Papers 0507, University of Guelph, Department of Economics and Finance.

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