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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. Drew Fudenberg & David K. Levine, 1996. "The Theory of Learning in Games," Levine's Working Paper Archive 624, David K. Levine.
    2. 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.
    3. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
    4. David K Levine, 1997. "Modeling Altruism and Spitefulness in Experiments," Levine's Working Paper Archive 2047, David K. Levine.
    5. Charness, Gary & Rabin, Matthew, 2001. "Understanding Social Preferences with Simple Tests," Department of Economics, Working Paper Series qt4qz9k8vg, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
    6. Basu, Kaushik, 2006. "Participatory Equity, Identity, and Productivity: Policy Implications for Promoting Development," Working Papers 06-06, Cornell University, Center for Analytic Economics.
    7. V. Crawford, 2010. "Adaptive Dynamics in Coordination Games," Levine's Working Paper Archive 404, David K. Levine.
    8. Matthew Rabin., 1992. "Incorporating Fairness into Game Theory and Economics," Economics Working Papers 92-199, University of California at Berkeley.
    9. McLeish, Kendra N. & Oxoby, Robert J., 2007. "Identity, Cooperation, and Punishment," IZA Discussion Papers 2572, Institute for the Study of Labor (IZA).
    10. 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.
    11. 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.
    12. 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.
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