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Coordination via correlation: an experimental study

Author

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  • John Duffy

    () (University of California, Irvine)

  • Ernest K. Lai

    () (Lehigh University)

  • Wooyoung Lim

    () (The Hong Kong University of Science and Technology)

Abstract

We report on an experiment exploring whether and how subjects may learn to use a correlation device to coordinate on a correlated equilibrium of the Battle of the Sexes game which Pareto dominates the mixed-strategy Nash equilibrium of that game. We consider a direct correlation device with messages phrased in terms of players’ actions as well as an indirect device with a priori meaningless messages. According to the revelation principle, it does not matter whether the correlation device is direct or indirect so long as it implements a correlated equilibrium. However, we find that subjects had an easier time coordinating on the efficient correlated equilibrium with a direct rather than an indirect device. Nevertheless, subjects were able to learn to use the indirect device to better coordinate their play. We further find that, when paired with a fixed partner, subjects utilized history-contingent strategies (e.g., “alternation”) as a coordinating device and were more likely to ignore the correlation device in this setting; the fixed-matching protocol can thus serve as a substitute for a correlation device in achieving an efficient coordination outcome.

Suggested Citation

  • John Duffy & Ernest K. Lai & Wooyoung Lim, 2017. "Coordination via correlation: an experimental study," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 64(2), pages 265-304, August.
  • Handle: RePEc:spr:joecth:v:64:y:2017:i:2:d:10.1007_s00199-016-0998-8
    DOI: 10.1007/s00199-016-0998-8
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Lisa Bruttel & Werner Güth & Juri Nithammer & Andreas Orland, 2020. "Inefficient Cooperation under Stochastic and Strategic Uncertainty," CEPA Discussion Papers 20, Center for Economic Policy Analysis.
    2. Verena Kurz & Andreas Orland & Kinga Posadzy, 2018. "Fairness versus efficiency: how procedural fairness concerns affect coordination," Experimental Economics, Springer;Economic Science Association, vol. 21(3), pages 601-626, September.
    3. Konstantinos Georgalos & Indrajit Ray & Sonali Sen Gupta, 2017. "Coarse correlation and coordination in a game," Working Papers 151235570, Lancaster University Management School, Economics Department.
    4. Cabrales, Antonio & Drouvelis, Michalis & Gurguc, Zeynep & Ray, Indrajit, 2017. "Transparency is overrated: communicating in a coordination game with private information," CEPR Discussion Papers 12353, C.E.P.R. Discussion Papers.
    5. Georgalos, Konstantinos & Ray, Indrajit & Gupta, Sonali Sen, 2019. "Nash vs. Coarse Correlation," Cardiff Economics Working Papers E2019/3, Cardiff University, Cardiff Business School, Economics Section.
    6. Konstantin Chatziathanasiou & Svenja Hippel & Michael Kurschilgen, 2020. "Property, Redistribution, and the Status Quo," Munich Papers in Political Economy 02, TUM School of Governance at the Technical University of Munich.
    7. He, Simin & Wu, Jiabin, 2020. "Compromise and coordination: An experimental study," Games and Economic Behavior, Elsevier, vol. 119(C), pages 216-233.
    8. Cabrales, Antonio & Drouvelis, Michalis & Gurguc, Zeynep & Ray, Indrajit, 2017. "Transparency is overrated: communicating in a coordination game with private information," CEPR Discussion Papers 12353, C.E.P.R. Discussion Papers.
    9. Arifovic, Jasmina & Jiang, Janet Hua, 2019. "Strategic uncertainty and the power of extrinsic signals– evidence from an experimental study of bank runs," Journal of Economic Behavior & Organization, Elsevier, vol. 167(C), pages 1-17.
    10. Cabrales, Antonio & Drouvelis, Michalis & Gurguc, Zeynep & Ray, Indrajit, 2018. "Do we need to listen to all stakeholders?: communicating in a coordination game with private information," Cardiff Economics Working Papers E2018/23, Cardiff University, Cardiff Business School, Economics Section.

    More about this item

    Keywords

    Alternation strategy; Battle of the sexes game; Coordination; Correlated equilibrium; Laboratory experiment; Revelation principle;

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C73 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Stochastic and Dynamic Games; Evolutionary Games
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness

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