In games with multiple, Pareto-rankable equilibria and repeated play, does a history of playing an inefficient equilibrium make it harder for the players to reach the efficient equilibrium? In other words, can people Ôget stuckÕ in bad equilibria? Previous studies have found support for this, but they have relied on naturally occurring variation in precedent. I implement randomized control to establish that precedent effects are important, but that natural occurring variation exaggerates the importance of precedent. I present evidence that some of the endogeneity of naturally occurring precedents is due to variation in risk-attitudes. This is because in the coordination games used, the inefficient equilibrium is associated with a safe strategy. Understanding the causal effect of precedent is important since many development problems, such as institutional change and technological advancement, are viewed as coordination games with Pareto-rankable equilibria. Moreover an appreciation of how potential heterogeneity may interact with the policy is essential when trying to lift groups out of bad precedents.
Download Info
To download:
If you experience problems downloading a file, check if you have the
proper application to
view it first. Information about this may be contained
in the File-Format links below. In case of further problems read
the IDEAS help
page. Note that these files are not on the IDEAS
site. Please be patient as the files may be large.
Publisher Info
Paper provided by George Mason University, Interdisciplinary Center for Economic Science in its series Working Papers with number
1010.