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The role of strategic uncertainty in games: An experimental study of cheap talk and contracts in the Nash demand game

  • Feltovich, Nick
  • Swierzbinski, Joe

We utilise results from a human-subjects experiment to examine the connection between strategic uncertainty and outcomes in games. Our basic game is a Nash demand game where one player has an outside option available. A "chat" treatment allows bargainers to send cheap-talk messages prior to playing the basic game, and in a "contracts" treatment, they can additionally propose and accept binding contracts. We propose that strategic uncertainty comprises at least two facets: "coordination-type", which is lower in the chat game than in the basic game, and "rationality-type", which is lower in the contracts game than in the chat game. We find that both types of strategic uncertainty impact bargaining outcomes: moving from the basic game to the chat game, and thence to contracts, improves several aspects of outcomes, such as higher efficiency, less opting out and less under-demanding. Other results include a treatment effect on the types of agreements that are reached.

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Article provided by Elsevier in its journal European Economic Review.

Volume (Year): 55 (2011)
Issue (Month): 4 (May)
Pages: 554-574

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Handle: RePEc:eee:eecrev:v:55:y:2011:i:4:p:554-574
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