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The effect of hysteresis on equilibrium selection in coordination games

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  • Romero, Julian

Abstract

One of the fundamental problems in both economics and organization is to understand how individuals coordinate. The widely used minimum-effort coordination game has served as a simplified model to better understand this problem. This paper first presents theoretical results that give conditions under which the minimum-effort coordination game exhibits hysteresis. It then uses these theoretical results to develop and confirm some experimental hypotheses using human subjects in the laboratory. The main insight is that play in a given game is heavily dependent on the history of parameters leading up to that game. For example, the experiments show that when cost c=0.5 in the minimum-effort coordination game, there is significantly more high effort if the cost has increased to c=0.5 compared to when the cost has decreased to c=0.5. One implication of this is that a temporary change in parameters may be able move the economic system from a bad equilibrium to a good equilibrium.

Suggested Citation

  • Romero, Julian, 2015. "The effect of hysteresis on equilibrium selection in coordination games," Journal of Economic Behavior & Organization, Elsevier, vol. 111(C), pages 88-105.
  • Handle: RePEc:eee:jeborg:v:111:y:2015:i:c:p:88-105
    DOI: 10.1016/j.jebo.2014.12.029
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    Cited by:

    1. Aidas Masiliunas, 2016. "Inefficient Lock-in with Sophisticated and Myopic Players," AMSE Working Papers 1615, Aix-Marseille School of Economics, Marseille, France, revised 19 Apr 2016.
    2. Fabra, Natalia & Montero, Juan Pablo, 2017. "Product Choice and Price Discrimination in Markets with Search Costs," CEPR Discussion Papers 12046, C.E.P.R. Discussion Papers.
    3. repec:eee:jeeman:v:83:y:2017:i:c:p:68-89 is not listed on IDEAS
    4. Weiss, Avi & Etziony, Amir, 2015. "The role of critical mass in establishing a successful network market: An experimental investigationAuthor-Name: Ruffle, Bradley J," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 58(C), pages 101-110.
    5. Bradley J. Ruffle, Avi Weiss, Amir Etziony, 2015. "The Role of Critical Mass in Establishing a Successful Network Market: An Experimental Investigation," LCERPA Working Papers 0092, Laurier Centre for Economic Research and Policy Analysis, revised 12 May 2015.

    More about this item

    Keywords

    Hysteresis; Minimum-effort coordination game; Logit equilibrium; Experimental economics; Equilibrium selection;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C92 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Group Behavior
    • M53 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Personnel Economics - - - Training

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