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Potential Maximization and Coalition Government Formation

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Author Info

  • Rod Garratt

    (Department Economics, University of California)

  • Cheng-Zhong Qin

    (Department Economics, University of California)

  • James E. Parco

    (Department of Management, United States Air Force Academy)

  • Amnon Rapoport

    (Department of Management and Policy, University of Arizona)

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 dominated strategies and strong/coalition proof Nash equilibrium are also tested.

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Bibliographic Info

Paper provided by Fondazione Eni Enrico Mattei in its series Working Papers with number 2004.82.

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Date of creation: May 2004
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Handle: RePEc:fem:femwpa:2004.82

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Keywords: Coalition formation; Potential maximization; Nash equilibrium refinements; Experimental study; Minimal winning;

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References

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  1. Monderer, Dov & Shapley, Lloyd S., 1996. "Potential Games," Games and Economic Behavior, Elsevier, vol. 14(1), pages 124-143, May.
  2. Qin, Cheng-Zhong, 1996. "Endogenous Formation of Cooperation Structures," Journal of Economic Theory, Elsevier, vol. 69(1), pages 218-226, April.
  3. Slikker, Marco, 2001. "Coalition Formation and Potential Games," Games and Economic Behavior, Elsevier, vol. 37(2), pages 436-448, November.
  4. repec:ebl:ecbull:v:3:y:2003:i:5:p:1-9 is not listed on IDEAS
  5. 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.
  6. Roger B. Myerson, 1976. "Graphs and Cooperation in Games," Discussion Papers 246, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  7. repec:ebl:ecbull:v:3:y:2003:i:12:p:1-11 is not listed on IDEAS
  8. 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.
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Cited by:
  1. Amegashie, J. Atsu & Cadsby, C. Bram & Song, Yang, 2007. "Competitive burnout: Theory and experimental evidence," Games and Economic Behavior, Elsevier, vol. 59(2), pages 213-239, May.

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