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Coordination failure caused by sunspots

Author

Listed:
  • Julie Beugnot

    () (CIRPEE - Université Laval)

  • Zeynep Gürgüç

    () (Imperial College London)

  • Frederik Roose Øvlisen

    () (University of Copenhagen)

  • Michael M. W. Roos

    () (Ruhr-University Bochum)

Abstract

In a coordination game with Pareto-ranked equilibria, we study whether a sunspot can lead to either coordination on an inferior equilibrium (mis-coordination) or to out-of equilibrium behavior (dis-coordination). While much of the literature searches for mechanisms to attain coordination on the efficient equilibrium, we consider sunspots as a potential reason for coordination failure. We conduct an experiment with a three player 2x2x2 game in which coordination on the efficient equilibrium is easy and should normally occur. In the control session, we find almost perfect coordination on the payoff-dominant equilibrium, but in the sunspot treatment, dis-coordination is frequent. Sunspots lead to significant inefficiency, and we conclude that sunspots can indeed cause coordination failure.

Suggested Citation

  • Julie Beugnot & Zeynep Gürgüç & Frederik Roose Øvlisen & Michael M. W. Roos, 2012. "Coordination failure caused by sunspots," Economics Bulletin, AccessEcon, vol. 32(4), pages 2860-2869.
  • Handle: RePEc:ebl:ecbull:eb-12-00546
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    File URL: http://www.accessecon.com/Pubs/EB/2012/Volume32/EB-12-V32-I4-P275.pdf
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    References listed on IDEAS

    as
    1. John C. Harsanyi & Reinhard Selten, 1988. "A General Theory of Equilibrium Selection in Games," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262582384, January.
    2. Harrison, Sharon G. & Weder, Mark, 2006. "Did sunspot forces cause the Great Depression?," Journal of Monetary Economics, Elsevier, vol. 53(7), pages 1327-1339, October.
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    5. Kuang, Xi (Jason) & Weber, Roberto A. & Dana, Jason, 2007. "How effective is advice from interested parties?: An experimental test using a pure coordination game," Journal of Economic Behavior & Organization, Elsevier, vol. 62(4), pages 591-604, April.
    6. Marimon Ramon & Spear Stephen E. & Sunder Shyam, 1993. "Expectationally Driven Market Volatility: An Experimental Study," Journal of Economic Theory, Elsevier, vol. 61(1), pages 74-103, October.
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    8. Cass, David & Shell, Karl, 1983. "Do Sunspots Matter?," Journal of Political Economy, University of Chicago Press, vol. 91(2), pages 193-227, April.
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    Citations

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    Cited by:

    1. Siebert, Jan & Yang, Guanzhong, 2017. "Discoordination and miscoordination caused by sunspots in the laboratory," Working Papers on East Asian Studies 114/2017, University of Duisburg-Essen, Institute of East Asian Studies IN-EAST.
    2. Dietmar Fehr & Frank Heinemann & Aniol Llorente-Saguer, 2011. "The Power of Sunspots: An Experimental Analysis," Discussion Paper Series of the Max Planck Institute for Research on Collective Goods 2011_33, Max Planck Institute for Research on Collective Goods.
    3. Bizer, Kilian & Meub, Lukas & Proeger, Till & Spiwoks, Markus, 2014. "Strategic coordination in forecasting: An experimental study," Center for European, Governance and Economic Development Research Discussion Papers 195, University of Goettingen, Department of Economics.

    More about this item

    Keywords

    sunspots; coordination game; multiple Pareto-ranked equilibria; experiment;

    JEL classification:

    • C9 - Mathematical and Quantitative Methods - - Design of Experiments
    • C7 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory

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