Strategic Delay and Rational Imitation in the Laboratory
AbstractThis paper investigates market failures due to strategic delays. We test experimentally a discrete model of dynamic investment, where two privately informed agents have an option to invest at the time of their choice in the presence of waiting costs. The equilibrium outcome of our experimental game is characterized by efficient imitation but complete revelation of information is time consuming. In accordance with the equilibrium solution, subjects better informed take investment decision before subjects who are less informed and subjects’ decisions exhibit rational imitation. Still, subjects do not play exactly in accordance with the equilibrium sequence and we interpret their deviations from equilibrium play as an attempt to internalize the information externalities.
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Bibliographic InfoPaper provided by Max Planck Institute of Economics, Strategic Interaction Group in its series Papers on Strategic Interaction with number 2005-35.
Length: 26 pages
Date of creation: May 2006
Date of revision:
Find related papers by JEL classification:
- C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2006-06-03 (All new papers)
- NEP-CSE-2006-06-03 (Economics of Strategic Management)
- NEP-EXP-2006-06-03 (Experimental Economics)
- NEP-GTH-2006-06-03 (Game Theory)
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