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A behavioral theory of equilibrium selection

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  • Bolle, Friedel

Abstract

Theories about unique equilibrium selection are often rejected in experimental investigations. We drop the idea of selecting a single prominent equilibrium but suggest the coexistence of different beliefs about "appropriate" equilibrium or non-equilibrium play. Our main selection criterion is efficiency applied to all or only to "fair" equilibria. This assumption is applied to 16 Binary Threshold Public Good games where at least k of four homogeneous or heterogeneous players have to incur fixed costs in order to produce a public good. The case k=4 is the Stag Hunt game which is most often used to test equilibrium selection. Our finite mixture model applies with the same parameters (shares of populations, altruism parameters) to the four thresholds k=1,2,3,4. The estimated shares of populations are similar in four treatments with identical or different cost/benefit ratios of the players. Our results for k=4 clearly contradict selection by Risk Dominance and Global Games. In the two (almost) symmetric treatments the Harsanyi/Selten selection explains 40% of the decisions.

Suggested Citation

  • Bolle, Friedel, 2017. "A behavioral theory of equilibrium selection," Discussion Papers 392, European University Viadrina Frankfurt (Oder), Department of Business Administration and Economics.
  • Handle: RePEc:zbw:euvwdp:392
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    Cited by:

    1. Friedel Bolle & Philipp E. Otto, 2017. "The flip side of power," Discussion Paper Series RECAP15 26, RECAP15, European University Viadrina, Frankfurt (Oder).
    2. Jörg Spiller & Friedel Bolle, 2017. "Experimental investigations of coordination games: high success rates, invariant behavior, and surprising dynamics," Discussion Paper Series RECAP15 28, RECAP15, European University Viadrina, Frankfurt (Oder).

    More about this item

    Keywords

    equilibrium selection; Binary Threshold Public Goods; payoff dominance; risk dominance; Global Games; efficiency; experiment;

    JEL classification:

    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • C57 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Econometrics of Games and Auctions
    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods

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