Can a single theory explain coordination? An experiment on alternative modes of reasoning and the conditions under which they are used

Date: 2016-01-18
By: Marco Faillo (University of Trento)
Alessandra Smerilli (PFSE-Auxilium)
Robert Sugden (University of East Anglia)
We investigate experimentally the conditions under which bounded best response and collective optimality reasoning are used in coordination games. Using level-k and team reasoning theories as exemplars, we study games with three pure-strategy equilibria, two of which are mutually isomorphic. The third is always team-optimal, but whether it is predicted by level-k theory differs across games. We find that collective optimality reasoning is facilitated if the collectively optimal equilibrium gives more equal payoffs than the others, and is inhibited if that equlibrium is Pareto-dominated by the others, considered separately. We suggest that coordination cannot be explained by a single theory.
Keywords: team reasoning, level-k theory, coordination games
JEL: C7 C9