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Strategic Interaction and Conventions

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  • Espinosa Alejos, María Paz
  • Kovarik, Jaromir
  • Ponti, Giovanni

Abstract

The scope of the paper is the literature that employs coordination games to study social norms and conventions from the viewpoint of game theory and cognitive psychology. We claim that those two alternative approaches are complementary, as they provide different insights to explain how people converge to a unique system of self-fulfilling expectations in presence of multiple, equally viable, conventions. While game theory explains the emergence of conventions relying on efficiency and risk considerations, the psychological view is more concerned with frame and labeling effects. The interaction between these alternative (and, sometimes, competing) effects leads to the result that coordination failures may well occur and, even when coordination takes place, there is no guarantee that the convention eventually established will be the most efficient.

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Paper provided by University of the Basque Country - Department of Foundations of Economic Analysis II in its series DFAEII Working Papers with number 2010-07.

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Date of creation: Jun 2010
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Handle: RePEc:ehu:dfaeii:201007

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Postal: Dpto. de Fundamentos del Análisis Económico II, = Facultad de CC. Económicas y Empresariales, Universidad del País Vasco, Avda. Lehendakari Aguirre 83, 48015 Bilbao, Spain
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Keywords: conventions; social norms; behavioral game theory;

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  1. Mehta, Judith & Starmer, Chris & Sugden, Robert, 1994. "The Nature of Salience: An Experimental Investigation of Pure Coordination Games," American Economic Review, American Economic Association, American Economic Association, vol. 84(3), pages 658-73, June.
  2. Carmen Herrero & Juan D. Moreno-Ternero & Giovanni Ponti, 2009. "On the Adjudication of Conflicting Claims: An Experimental Study," Working Papers, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center 2009-5, Universidad de Málaga, Department of Economic Theory, Málaga Economic Theory Research Center.
  3. Vincent P. Crawford & Uri Gneezy & Yuval Rottenstreich, 2008. "The Power of Focal Points Is Limited: Even Minute Payoff Asymmetry May Yield Large Coordination Failures," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1443-58, September.
  4. Elster, Jon, 1989. "Social Norms and Economic Theory," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 3(4), pages 99-117, Fall.
  5. Van Huyck, John B & Battalio, Raymond C & Beil, Richard O, 1990. "Tacit Coordination Games, Strategic Uncertainty, and Coordination Failure," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 234-48, March.
  6. Kandori, M. & Mailath, G.J., 1991. "Learning, Mutation, And Long Run Equilibria In Games," Papers, Princeton, Woodrow Wilson School - John M. Olin Program 71, Princeton, Woodrow Wilson School - John M. Olin Program.
  7. Russell Cooper & T.W. Ross, 1984. "Product Warranties and Double Moral Hazard," Cowles Foundation Discussion Papers, Cowles Foundation for Research in Economics, Yale University 716, Cowles Foundation for Research in Economics, Yale University.
  8. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262582384, December.
  9. Cooper, Russell, et al, 1990. "Selection Criteria in Coordination Games: Some Experimental Results," American Economic Review, American Economic Association, American Economic Association, vol. 80(1), pages 218-33, March.
  10. Tyran, Jean-Robert, 2003. "Behavioral Game Theory. Experiments in Strategic Interaction: Colin F. Camerer, Princeton University Press, Princeton, New Jersey, 2003, p. 550, Price $65.00/[UK pound]42.95, ISBN 0-691-09039-4," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, Elsevier, vol. 32(6), pages 717-720, December.
  11. Bacharach, Michael & Bernasconi, Michele, 1997. "The Variable Frame Theory of Focal Points: An Experimental Study," Games and Economic Behavior, Elsevier, Elsevier, vol. 19(1), pages 1-45, April.
  12. Cooper, Russell & John, Andrew, 1988. "Coordinating Coordination Failures in Keynesian Models," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 103(3), pages 441-63, August.
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