An Experimental Study of Costly Coordination

This paper reports data for coordination game experiments with random matching. The experimental design is based on changes in an effort-cost parameter, which do not alter the set of Nash equilibria, nor do they alter the predictions of dynamic adjustment theories based on imitation or best responses to others' decisions. As would be expected, however, increases in effort cost result in reduced effort levels. Average behavior in the final periods is consistent with a one-parameter stochastic generalization of the Nash equilibrium that is calculated by maximizing a "stochastic potential function." The noise parameter estimated from the initial two-person, minimum-effort games is used to predict behavior in subsequent experiments with three-person games, using both minimum and medium-effort payoff structures.