The Effect of Hysteresis on Equilibrium Selection in Coordination Games
AbstractOne of the fundamental problems in both economics and organization is to understand how individuals coordinate. The widely used minimum-effort coordination game has been used as a simplifed model to better understand this problem. This paper first presents some theoretical results that give conditions under which the minimum-effort coordination game exhibits hysteresis. Using these theoretical results, some experimental hypotheses are developed and then confirmed using human subjects in the laboratory. The main insight is that play in a given game is heavily dependent on the history of parameters leading up to that game. For example, the experiments show when cost c = 0:5 in the minimum-effort coordination game, there is signifcantly more high effort if the cost has increased to c = 0:5 compared to when the cost has decreased to c = 0:5. One implication of this is that a temporary change in parameters may be able move the economic system from a bad equilibrium to a good equilibrium.
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Bibliographic InfoPaper provided by Purdue University, Department of Economics in its series Purdue University Economics Working Papers with number 1265.
Length: 28 pages
Date of creation: Sep 2011
Date of revision:
Hysteresis; Minimum-effort Coordination Game; Logit Equilibrium; Experimental Economics; Equilibrium Selection;
Find related papers by JEL classification:
- C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
- C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
- M53 - Business Administration and Business Economics; Marketing; Accounting - - Personnel Economics - - - Training
This paper has been announced in the following NEP Reports:
- NEP-ALL-2011-09-22 (All new papers)
- NEP-EVO-2011-09-22 (Evolutionary Economics)
- NEP-EXP-2011-09-22 (Experimental Economics)
- NEP-GTH-2011-09-22 (Game Theory)
- NEP-HPE-2011-09-22 (History & Philosophy of Economics)
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