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The roles of level-k and team reasoning in solving coordination games

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  • Marco Faillo

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  • Alessandra Smerilli
  • Robert Sugden

Abstract

Level-k and team reasoning theories, among others, have been used to explain experimental evidence on coordination games. Both theories succeed in explaining some results and both fail in explaining other results. Sometimes it is impossible to discriminate between them. For this reason we propose an experiment with pie games, similar to the ones used by Crawford et al. (2008). We observe subjects playing a series of coordination games, with different configurations of equality and Pareto-dominance, for which it is possible to provide clear predictions derived from both team reasoning and a particular cognitive hierarchy model: level-k theory. In line with previous experimental results, we find that each theory fails to predict observed behaviour in some games. However, because of the design of our experiment, we can go deeper into the matter. Our results show that Pareto dominance, fairness and uniqueness are good predictors for coordination choices. Secondly, we find mixed evidence about level-k and team reasoning theories. In particular team reasoning theory fails to predict choices when they picks out a solution which is Pareto dominated and not compensated by grater equality; Level-k theory fails in games in which it predicts the choice of one of not unique slices, and the unique choice is more equal than the alternative choices. This could represent a step forward to investigate the presence of team reasoning or level-k in coordinating behaviour

Suggested Citation

  • Marco Faillo & Alessandra Smerilli & Robert Sugden, 2013. "The roles of level-k and team reasoning in solving coordination games," CEEL Working Papers 1306, Cognitive and Experimental Economics Laboratory, Department of Economics, University of Trento, Italia.
  • Handle: RePEc:trn:utwpce:1306
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    File URL: http://www-ceel.economia.unitn.it/papers/papero13_06.pdf
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    References listed on IDEAS

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    1. Bacharach, Michael, 1999. "Interactive team reasoning: A contribution to the theory of co-operation," Research in Economics, Elsevier, vol. 53(2), pages 117-147, June.
    2. Vincent P. Crawford & Uri Gneezy & Yuval Rottenstreich, 2008. "The Power of Focal Points Is Limited: Even Minute Payoff Asymmetry May Yield Large Coordination Failures," American Economic Review, American Economic Association, vol. 98(4), pages 1443-1458, September.
    3. Bacharach, Michael & Stahl, Dale O., 2000. "Variable-Frame Level-n Theory," Games and Economic Behavior, Elsevier, vol. 32(2), pages 220-246, August.
    4. Vincent P. Crawford & Miguel A. Costa-Gomes, 2006. "Cognition and Behavior in Two-Person Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 96(5), pages 1737-1768, December.
    5. Nicholas Bardsley & Judith Mehta & Chris Starmer & Robert Sugden, 2010. "Explaining Focal Points: Cognitive Hierarchy Theory "versus" Team Reasoning," Economic Journal, Royal Economic Society, vol. 120(543), pages 40-79, March.
    6. Costa-Gomes, Miguel & Crawford, Vincent P & Broseta, Bruno, 2001. "Cognition and Behavior in Normal-Form Games: An Experimental Study," Econometrica, Econometric Society, vol. 69(5), pages 1193-1235, September.
    7. Alessandra Smerilli, 2012. "We-thinking and vacillation between frames: filling a gap in Bacharach’s theory," Theory and Decision, Springer, vol. 73(4), pages 539-560, October.
    8. Sugden, Robert, 2000. "Team Preferences," Economics and Philosophy, Cambridge University Press, vol. 16(02), pages 175-204, October.
    9. Nagel, Rosemarie, 1995. "Unraveling in Guessing Games: An Experimental Study," American Economic Review, American Economic Association, vol. 85(5), pages 1313-1326, December.
    10. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer;Economic Science Association, vol. 10(2), pages 171-178, June.
    11. Stahl, Dale II & Wilson, Paul W., 1994. "Experimental evidence on players' models of other players," Journal of Economic Behavior & Organization, Elsevier, vol. 25(3), pages 309-327, December.
    12. Isoni, Andrea & Poulsen, Anders & Sugden, Robert & Tsutsui, Kei, 2013. "Focal points in tacit bargaining problems: Experimental evidence," European Economic Review, Elsevier, vol. 59(C), pages 167-188.
    13. Colin F. Camerer & Teck-Hua Ho & Juin-Kuan Chong, 2004. "A Cognitive Hierarchy Model of Games," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 861-898.
    14. Tan, Jonathan H.W. & Zizzo, Daniel John, 2008. "Groups, cooperation and conflict in games," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 37(1), pages 1-17, February.
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    Cited by:

    1. Parravano, Melanie & Poulsen, Odile, 2015. "Stake size and the power of focal points in coordination games: Experimental evidence," Games and Economic Behavior, Elsevier, vol. 94(C), pages 191-199.
    2. Stefania Sitzia & Jiwei Zheng, 2017. "Group behaviour in tacit coordination games with focal points: An experimental investigation," Working Paper series, University of East Anglia, Centre for Behavioural and Experimental Social Science (CBESS) 17-02, School of Economics, University of East Anglia, Norwich, UK..

    More about this item

    Keywords

    Coordination games; Focal points; Team reasoning; Level-k theory;

    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
    • A13 - General Economics and Teaching - - General Economics - - - Relation of Economics to Social Values

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