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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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    References listed on IDEAS

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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.

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    More about this item

    Keywords

    coordination; precedent; risk attitudes; state dependence;
    All these keywords.

    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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