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

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  • Feltovich, Nick
  • Swierzbinski, Joe

Abstract

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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  • Feltovich, Nick & Swierzbinski, Joe, 2011. "The role of strategic uncertainty in games: An experimental study of cheap talk and contracts in the Nash demand game," European Economic Review, Elsevier, vol. 55(4), pages 554-574, May.
    • Handle: RePEc:eee:eecrev:v:55:y:2011:i:4:p:554-574
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    8. Pagnozzi, Marco & Saral, Krista J., 2019. "Efficiency in auctions with (failed) resale," Journal of Economic Behavior & Organization, Elsevier, vol. 159(C), pages 254-273.
    9. Martin Dufwenberg & Maroš Servátka & Radovan Vadovič, 2012. "ABC on Deals," Working Papers in Economics 12/14, University of Canterbury, Department of Economics and Finance.
    10. Fabio Galeotti & Maria Montero & Anders Poulsen, 2015. "Efficiency versus equality in real-time bargaining with communication," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 15-18, School of Economics, University of East Anglia, Norwich, UK..
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