Contagion: An Experimental Study

Does the network structure in which economic agents interact affect their ability to coordinate of high payoff investments in environments with multiple equilibria? We conduct experiments with paid human subjects in an effort to resolve this important question. Our experiment tests whether two different exogenously imposed interaction structures, the local interaction structure of Ellison (1993) and the uniform matching structure of Kandoori, Mailath, and Rob (1993) or Young (1993), affects the ability of human subjects to coordinate on a payoff dominant Nash equilibrium in a simple coordination game where the unique payoff dominant equilibrium initially coincides with and later differs from the risk dominant Nash equilibrium. The preliminary experimental findings provide insight on how certain payoff dominated strategies may spread through an economy - our definition of a contagion. These findings are also used to construct the appropriate model of individual learning behavior that gives rise to a contagion within the coordination game environments that we study.