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Coordination in games with incomplete information: experimental results

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  • T. M. McDaniel

Abstract

We use experiments to study coordination in games with incomplete information and ask whether an informed player can use cheap talk strategically. Two players decide whether to enter a market where stage game payoffs either form a prisoner’s dilemma or a stag-hunt. One player knows which stage game is played while the other knows only the associated probabilities. When players engage in a prisoner’s dilemma each player prefers unilateral entry. When payoffs form a stag-hunt game, the outcome where neither enters Pareto dominates the outcome where both enter. We ask whether cheap talk aids coordination on the Pareto dominant outcome and whether the informed player can use cheap talk to engineer her preferred outcome. Consistent with previous literature, the benefit of cheap talk depends on the relationship between payoffs and risks. We find that cheap talk benefits informed players only when payoff risks are low. Key Words: cheap talk, coordination, experiments, incomplete information, risk dominance, payoff domiance

Suggested Citation

  • T. M. McDaniel, 2011. "Coordination in games with incomplete information: experimental results," Working Papers 11-03, Department of Economics, Appalachian State University.
  • Handle: RePEc:apl:wpaper:11-03
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    File URL: http://econ.appstate.edu/RePEc/pdf/wp1103.pdf
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    1. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
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    1. repec:wsi:igtrxx:v:13:y:2011:i:04:n:s021919891100309x is not listed on IDEAS

    More about this item

    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
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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