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Measuring Strategic Uncertainty in Coordination Games

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  • Heinemann, Frank
  • Nagel, Rosemarie
  • Ockenfels, Peter

Abstract

Lecture on the first SFB/TR 15 meeting, Gummersbach, July, 18 - 20, 2004This paper explores predictability of behavior in coordination games with multiple equilibria. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Attitudes towards strategic uncertainty in coordination games are related to risk aversion, experience seeking, gender and age. From the distribution of certainty equivalents among participating students we estimate probabilities for successful coordination in a wide range of coordination games. For many games success of coordination is predictable with a reasonable error rate. The best response of a risk neutral player is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Data indicate that subjects have probabilistic beliefs about success or failure of coordination rather than beliefs about individual behavior of other players.

Suggested Citation

  • Heinemann, Frank & Nagel, Rosemarie & Ockenfels, Peter, 2004. "Measuring Strategic Uncertainty in Coordination Games," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 6, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  • Handle: RePEc:trf:wpaper:6
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    More about this item

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C91 - Mathematical and Quantitative Methods - - Design of Experiments - - - Laboratory, Individual Behavior
    • D81 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Criteria for Decision-Making under Risk and Uncertainty
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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