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Testing Models of Strategic Uncertainty: Equilibrium Selection in Repeated Games

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  • Emanuel Vespa
  • Taylor Weidman
  • Alistair J. Wilson

Abstract

In repeated-game applications where both the collusive and non-collusive outcomes can be supported as equilibria, researchers must resolve underlying selection questions if theory will be used to understand counterfactual policies. One guide to selection, based on clear theoretical underpinnings, has shown promise in predicting when collusive outcomes will emerge in controlled repeated-game experiments. In this paper we both expand upon and experimentally test this model of selection, and its underlying mechanism: strategic uncertainty. Adding an additional source of strategic uncertainty (the number of players) to the more-standard payoff sources, we stress test the model. Our results affirm the model as a tool for predicting when tacit collusion is likely/unlikely to be successful. Extending the analysis, we corroborate the mechanism of the model. When we remove strategic uncertainty through an explicit coordination device, the model no longer predicts the selected equilibrium.

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  • Emanuel Vespa & Taylor Weidman & Alistair J. Wilson, 2021. "Testing Models of Strategic Uncertainty: Equilibrium Selection in Repeated Games," Papers 2101.05900, arXiv.org.
    • Handle: RePEc:arx:papers:2101.05900
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    Cited by:

    1. Wolff, Irenaeus, 2022. "Predicting Voluntary Contributions by `Revealed-Preference Nash-Equilibrium'," VfS Annual Conference 2022 (Basel): Big Data in Economics 264072, Verein für Socialpolitik / German Economic Association.

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