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Coordination with Cognitive Noise

Author

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  • Frydman, Cary
  • Nunnari, Salvatore

Abstract

We experimentally study how cognitive noise affects behavior in coordination games. Our key testable prediction is that equilibrium behavior depends on context – which we define as the distribution from which games are drawn. This prediction arises from players efficiently using their limited cognitive resources; furthermore, this prediction distinguishes cognitive noise from a large class of alternative behavioral game theory and learning models. Experimentally, we find that subjects coordinate more frequently when game payoffs are drawn from a narrower distribution. Nearly 50% of the variability in behavior can be attributed to cognitive noise rather than alternative sources of strategic uncertainty.

Suggested Citation

  • Frydman, Cary & Nunnari, Salvatore, 2021. "Coordination with Cognitive Noise," CEPR Discussion Papers 16644, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16644
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    Keywords

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    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
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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