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

  • Omar Al-Ubaydli

    ()

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

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.

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File URL: http://www.gmu.edu/schools/chss/economics/icesworkingpapers.gmu.edu/pdf/1010.pdf
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Paper provided by George Mason University, Interdisciplinary Center for Economic Science in its series Working Papers with number 1010.

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Length: 16 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:gms:wpaper:1010
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  1. 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.
  2. Andersen, Steffen & Harrison, Glenn W. & Lau, Morten Igel & Rutström, Elisabeth E., 2007. "Behavioral Econometrics for Psychologists," Working Papers 18-2007, Copenhagen Business School, Department of Economics.
  3. Jones, Garett, 2008. "Are smarter groups more cooperative? Evidence from prisoner's dilemma experiments, 1959-2003," Journal of Economic Behavior & Organization, Elsevier, vol. 68(3-4), pages 489-497, December.
  4. Devetag, Giovanna, 2005. "Precedent transfer in coordination games: An experiment," Economics Letters, Elsevier, vol. 89(2), pages 227-232, November.
  5. 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.
  6. Douglass C. North, 2005. "Introduction to Understanding the Process of Economic Change
    [Understanding the Process of Economic Change]
    ," Introductory Chapters, Princeton University Press.
  7. 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.
  8. 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.
  9. 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.
  10. repec:cup:cbooks:9780521855266 is not listed on IDEAS
  11. Schotter, A. & Sopher, B., 2001. "Social Learning and Coordination Conventions in Inter-Generational Games: An Experimental Study," Working Papers 01-10, C.V. Starr Center for Applied Economics, New York University.
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