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Efficient Coordination in Weakest-Link Games

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  • Riedl, Arno

    ()
    (Maastricht University)

  • Rohde, Ingrid M.T.

    ()
    (Istanbul Bilgi University)

  • Strobel, Martin

    ()
    (Maastricht University)

Abstract

Existing experimental research on behavior in weakest-link games shows overwhelmingly the inability of people to coordinate on the efficient equilibrium, especially in larger groups. We hypothesize that people are able to coordinate on efficient outcomes, provided they have sufficient freedom to choose their interaction neighborhood. We conduct experiments with medium sized and large groups and show that neighborhood choice indeed leads to coordination on the fully efficient equilibrium, irrespective if group size. This leads to substantial welfare effects. Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice than without neighborhood choice. We identify exclusion as the simple but very effective mechanism underlying this result. In early rounds, high performers exclude low performers who in consequence 'learn' to become high performers.

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Bibliographic Info

Paper provided by Institute for the Study of Labor (IZA) in its series IZA Discussion Papers with number 6223.

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Length: 47 pages
Date of creation: Dec 2011
Date of revision:
Handle: RePEc:iza:izadps:dp6223

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Keywords: efficient coordination; weakest-link; minimum effort; neighborhood choice; experiment;

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Cited by:
  1. Eva Ranehill & Frédéric Schneider & Roberto A. Weber, 2012. "Growing groups, cooperation, and the rate of entry," ECON - Working Papers 103, Department of Economics - University of Zurich, revised May 2013.
  2. Dietrichson, Jens & Jochem, Torsten, 2014. "Organizational coordination and costly communication with boundedly rational agents," Comparative Institutional Analysis Working Paper Series 2014:1, Comparative Institutional Analysis, Lund University School of Economics and Management.
  3. Kenju Kamei & Louis Putterman, 2013. "Play it Again: Partner Choice, Reputation Building and Learning in Restarting, Finitely-Repeated Dilemma Games," Working Papers 2013-8, Brown University, Department of Economics.

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