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How Large Looms the Ghost of the Past? State-Dependence vs. Heterogeneity in the Stag Hunt

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  • Omar Al-Ubaydli

    () (Department of Economics and Mercatus Center, George Mason University)

Abstract

In games with multiple, Pareto-rankable equilibria and repeated play, does a history of playing an inefficient equilibrium make it harder for the players to reach the efficient equilibrium? In other words, can people Ôget stuckÕ in bad equilibria? Previous studies have found support for this, but they have relied on naturally occurring variation in precedent. I implement randomized control to establish that precedent effects are important, but that natural occurring variation exaggerates the importance of precedent. I present evidence that some of the endogeneity of naturally occurring precedents is due to variation in risk-attitudes. This is because in the coordination games used, the inefficient equilibrium is associated with a safe strategy. Understanding the causal effect of precedent is important since many development problems, such as institutional change and technological advancement, are viewed as coordination games with Pareto-rankable equilibria. Moreover an appreciation of how potential heterogeneity may interact with the policy is essential when trying to lift groups out of bad precedents.

Suggested Citation

  • Omar Al-Ubaydli, 2009. "How Large Looms the Ghost of the Past? State-Dependence vs. Heterogeneity in the Stag Hunt," Working Papers 1010, George Mason University, Interdisciplinary Center for Economic Science.
  • Handle: RePEc:gms:wpaper:1010
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    File URL: http://www.gmu.edu/schools/chss/economics/icesworkingpapers.gmu.edu/pdf/1010.pdf
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    References listed on IDEAS

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    1. Bacharach, Michael & Bernasconi, Michele, 1997. "The Variable Frame Theory of Focal Points: An Experimental Study," Games and Economic Behavior, Elsevier, vol. 19(1), pages 1-45, April.
    2. Hey, John D & Orme, Chris, 1994. "Investigating Generalizations of Expected Utility Theory Using Experimental Data," Econometrica, Econometric Society, vol. 62(6), pages 1291-1326, November.
    3. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabet E., 2010. "Behavioral econometrics for psychologists," Journal of Economic Psychology, Elsevier, vol. 31(4), pages 553-576, August.
    4. Margo, Robert A., 2006. "Economic Origins of Dictatorship and Democracy. By Daron Acemoglu and James A. Robinson. New York: Cambridge University Press, 2006. Pp. vii, 416. $35," The Journal of Economic History, Cambridge University Press, vol. 66(02), pages 532-534, June.
    5. Acemoglu,Daron & Robinson,James A., 2009. "Economic Origins of Dictatorship and Democracy," Cambridge Books, Cambridge University Press, number 9780521671422.
    6. Douglass C. North, 2005. "Introduction to Understanding the Process of Economic Change," Introductory Chapters,in: Understanding the Process of Economic Change Princeton University Press.
    7. Roberto A. Weber, 2006. "Managing Growth to Achieve Efficient Coordination in Large Groups," American Economic Review, American Economic Association, vol. 96(1), pages 114-126, March.
    8. Devetag, Giovanna, 2005. "Precedent transfer in coordination games: An experiment," Economics Letters, Elsevier, vol. 89(2), pages 227-232, November.
    9. Blume, Andreas & Ortmann, Andreas, 2007. "The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria," Journal of Economic Theory, Elsevier, vol. 132(1), pages 274-290, January.
    10. Andrew Schotter & Barry Sopher, 2003. "Social Learning and Coordination Conventions in Intergenerational Games: An Experimental Study," Journal of Political Economy, University of Chicago Press, vol. 111(3), pages 498-529, June.
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    Cited by:

    1. Al-Ubaydli, Omar & Jones, Garett & Weel, Jaap, 2010. "Patience, cognitive skill and coordination in the repeated stag hunt," MPRA Paper 27723, University Library of Munich, Germany.

    More about this item

    Keywords

    coordination; precedent; risk attitudes; state dependence;

    JEL classification:

    • D02 - Microeconomics - - General - - - Institutions: Design, Formation, Operations, and Impact
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth

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