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The Potential of Social Identity for Equilibrium Selection

  • Roy Chen
  • Yan Chen
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When does a common group identity improve efficiency in coordination games? To answer this question, we propose a group-contingent social preference model and derive conditions under which social identity changes equilibrium selection. We test our predictions in the minimum-effort game in the laboratory under parameter configurations which lead to an inefficient low-effort equilibrium for subjects with no group identity. For those with a salient group identity, consistent with our theory, we find that learning leads to ingroup coordination to the efficient high-effort equilibrium. Additionally, our theoretical framework reconciles findings from a number of coordination game experiments. (JEL C71, C91, D71)

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 101 (2011)
Issue (Month): 6 (October)
Pages: 2562-89

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Handle: RePEc:aea:aecrev:v:101:y:2011:i:6:p:2562-89
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  1. V. Crawford, 2010. "Adaptive Dynamics in Coordination Games," Levine's Working Paper Archive 404, David K. Levine.
  2. Eckel, Catherine C. & Grossman, Philip J., 2005. "Managing diversity by creating team identity," Journal of Economic Behavior & Organization, Elsevier, vol. 58(3), pages 371-392, November.
  3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  4. Charness, Gary & Rabin, Matthew, 2002. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt3d04q5sm, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  5. Drew Fudenberg & David K. Levine, 1996. "The Theory of Learning in Games," Levine's Working Paper Archive 624, David K. Levine.
  6. David K. Levine, 1998. "Modeling Altruism and Spitefulness in Experiment," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 1(3), pages 593-622, July.
  7. Cooper, David J. & Stockman, Carol Kraker, 2002. "Fairness and learning: an experimental examination," Games and Economic Behavior, Elsevier, vol. 41(1), pages 26-45, October.
  8. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March.
  9. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
  10. Kaushik Basu, 2007. "Participatory Equity, Identity, and Productivity Policy Implications for Promoting Development," Working Papers id:1122, eSocialSciences.
  11. McLeish, Kendra N. & Oxoby, Robert J., 2007. "Identity, Cooperation, and Punishment," IZA Discussion Papers 2572, Institute for the Study of Labor (IZA).
  12. Axel Ockenfels & Gary E. Bolton, 2000. "ERC: A Theory of Equity, Reciprocity, and Competition," American Economic Review, American Economic Association, vol. 90(1), pages 166-193, March.
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