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Equilibrium Selection through Incomplete Information in Coordination Games: An Experimental Study

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Author Info
Rosemarie Nagel ()
Antonio Cabrales
Roc Armenter

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Abstract

We perform an experiment on a pure coordination game with uncertainty about the payoffs. Our game is closely related to models that have been used in many macroeconomic and financial applications to solve problems of equilibrium indeterminacy. In our experiment each subject receives a noisy signal about the true payoffs. This game has a unique strategy profile that survives the iterative deletion of strictly dominated strategies (thus a unique Nash equilibrium). The equilibrium outcome coincides, on average, with the risk-dominant equilibrium outcome of the underlying coordination game. The behavior of the subjects converges to the theoretical prediction after enough experience has been gained. The data (and the comments) suggest that subjects do not apply through "a priori" reasoning the iterated deletion of dominated strategies. Instead, they adapt to the responses of other players. Thus, the length of the learning phase clearly varies for the different signals. We also test behavior in a game without uncertainty as a benchmark case. The game with uncertainty is inspired by the "global" games of Carlsson and Van Damme (1993).

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Paper provided by Department of Economics and Business, Universitat Pompeu Fabra in its series Economics Working Papers with number 601.

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Date of creation: Feb 2002
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Handle: RePEc:upf:upfgen:601

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Related research
Keywords: Global games; risk dominance; equilibrium selection; common knowledge; Leex;

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Find related papers by JEL classification:
C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information
G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages

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Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Alan Beggs, 2005. "Learning in Bayesian Games with Binary Actions," Economics Series Working Papers 232, University of Oxford, Department of Economics. [Downloadable!]
  2. Frank Heinemann & Rosemarie Nagel & Peter Ockenfels, 2004. "Measuring Strategic Uncertainty in Coordination Games," Economics Working Papers 804, Department of Economics and Business, Universitat Pompeu Fabra. [Downloadable!]
    Other versions:
  3. Jean-Pierre Allegret & Camille Cornand, 2005. "The Pros and Cons of Higher Transparency: The Case of Speculative Attacks," Working Papers 0502, Groupe d'Analyse et de Théorie Economique (GATE), Centre national de la recherche scientifique (CNRS), Université Lyon 2, Ecole Normale Supérieure. [Downloadable!]
  4. Alexander Elbittar & Rodrigo Harrison & Roberto Muñoz, 2007. "Network Structure in a Link-formation Game: An Experimental Study," Levine's Working Paper Archive 122247000000001708, David K. Levine. [Downloadable!]
    Other versions:
  5. Camille Cornand & Frank Heinemann, 2004. "Optimal Degree of Public Information Dissemination," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Markus K Brunnermeier & John Morgan, 2004. "Clock Games: Theory and Experiments," Levine's Bibliography 122247000000000401, UCLA Department of Economics. [Downloadable!]
  7. Christina E. Bannier, 2003. "Privacy or Publicity - Who Drives the Wheel?," Game Theory and Information 0309006, EconWPA. [Downloadable!]
  8. Christian Hellwig, 2002. "Imperfect Common Knowledge of Preferences in Global Coordination Games (October 2002)," UCLA Economics Online Papers 211, UCLA Department of Economics. [Downloadable!]
  9. Uwe Dulleck, 2002. "The e-mail game revisited - Modeling rough inductive reasoning," Vienna Economics Papers 0211, University of Vienna, Department of Economics. [Downloadable!]
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