An Experimental Study of Uncertainty in Coordination Games

Date: 2015-09-23
By: Ioannou, Christos A.
Makris, Miltiadis
URL: http://d.repec.org/n?u=RePEc:stn:sotoec:1506&r=net
Global games and Poisson games have been proposed to address equilibrium indeterminacy in Coordination games. The former assume that agents face idiosyncratic uncertainty about economic fundamentals to capture disperse information, whereas the latter model the number of actual players as a Poisson random variable to capture population uncertainty in large games. Given that their predictions differ, it is imperative to understand which type of uncertainty drives empirical behavior in macroeconomic environments with strategic complementarities. Recent experimental literature finds mixed results on whether subjects’ behavior is similar in Global and Common Knowledge Coordination games, and hence on whether idiosyncratic uncertainty about economic fundamentals is an important determinant of subjects’ behavior. Poisson Coordination games have not been investigated experimentally. We fill this gap. Our findings suggest that uncertainty about the number of actual players may influence subjects’ behavior. Crucially, such behavior is consistent with the theoretical prediction of Poisson Coordination games.
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Spatial Coordination in Agglomeration Bonus Schemes with Transaction Costs and Communication: An Experimental Study

Spatial Coordination in Agglomeration Bonus Schemes with Transaction Costs and Communication: An Experimental Study
Date: 2015-05
By: Simanti Banerjee (University of Nebraska-Lincoln)
Timothy N. Cason (Purdue University)
Frans P. de Vries (University of Stirling)
Nick Hanley (Department of Geography and Sustainable Development, University of St. Andrews)
URL: http://d.repec.org/n?u=RePEc:sss:wpaper:2015-10&r=net
Agglomeration Bonus (AB) schemes reward private landowners to spatially coordinate land use decisions to enhance the supply of ecosystem services. The AB mechanism creates a coordination game with multiple Pareto ranked Nash equilibria, which correspond to different spatially-coordinated land use patterns. This paper experimentally analyses subjects’ participation decisions, land use choices and AB performance in the presence of transaction costs, with and without the option to communicate with neighboring subjects in a local network setting. The experiment varies transaction costs at two levels (high and low), which affects the risks and payoffs of coordinating on the different equilibria. Results indicate a significant difference in participation under high and low transaction costs in the early stages of the experiment. Increased experience reduces participation rates and AB performance. Costless pre-play communication induces full participation and land use choice pertaining to the efficient Nash equilibrium. If communication is costly, the level of transaction costs affects participation levels, the degree of spatial coordination, and the ecosystem services benefits produced. Our study suggests that performance of Payment for Ecosystem Services schemes in general and the AB scheme in particular can be improved through mechanisms intended to reduce the costs associated with participation and communication.
Keywords: Coordination Games, Lab Experiments, Local Networks, Payment for Ecosystem Services
JEL: C91 D83 D81 Q51 Q

 

The Role of Critical Mass in Establishing a Successful Network Market: An Experimental Investigation

The Role of Critical Mass in Establishing a Successful Network Market: An Experimental Investigation
Date: 2015-05-12
By: Bradley J. Ruffle, Avi Weiss, Amir Etziony (Wilfrid Laurier University)
URL: http://d.repec.org/n?u=RePEc:wlu:lcerpa:0092&r=net
A network market is a market in which the benefit each consumer derives from a good is an increasing function of the number of consumers who own the same or similar goods. A major obstacle that plagues the introduction of a network good is the ability to reach critical mass, namely, the minimum number of buyers required to render purchase worthwhile. This can be likened to a coordination game with multiple Pareto-ranked equilibria. Through a series of experiments, we study consumers’ ability to coordinate on purchasing the network good. Our results highlight the central importance of the level of the critical mass. Neither an improved reward-risk ratio through lower prices nor previous success at a lower critical mass facilitates the establishment of a network market when the critical mass is sufficiently high.
Keywords: experimental economics, network goods, coordination game, critical mass
JEL: C92 L19

Learning, Words and Actions: Experimental Evidence on Coordination-Improving Information

Date: 2013-07
By: Nicolas Jacquemet (EEP-PSE – Ecole d’Économie de Paris – Paris School of Economics – Ecole d’Économie de Paris, BETA – Bureau d’économie théorique et appliquée – CNRS : UMR7522 – Université de Strasbourg – Université Nancy II)
Adam Zylbersztejn (EEP-PSE – Ecole d’Économie de Paris – Paris School of Economics – Ecole d’Économie de Paris, CES – Centre d’économie de la Sorbonne – CNRS : UMR8174 – Université Paris I – Panthéon-Sorbonne)
URL: http://d.repec.org/n?u=RePEc:hal:journl:halshs-00845123&r=net
We experimentally study an asymmetric coordination game with two Nash equilibria: one is Pareto-efficient, the other is Pareto-inefficient and involves a weakly dominated strategy. We assess whether information about the interaction partner helps eliminate the imperfect equilibrium. Our treatments involve three information-enhancing mechanisms: repetition and two kinds of individual signals: messages from partner or observation of his past choices. Repetition-based learning increases the frequencies of the most efficient outcome and the most costly strategic mismatch. Moreover, it is superseded by individual signals. Like previous empirical studies, we find that signals provide a screening of partners’ intentions that reduces the frequency of coordination failures. Unlike these studies, we find that the transmission of information between partners, either via messages or observation, does not suffice to significantly increase the overall efficiency of outcomes. This happens mostly because information does not restrain the choice of the dominated action by senders.
Keywords: coordination game; communication; cheap-talk; observation

Learning, Words and Actions: Experimental Evidence on Coordination-Improving Information

Date: 2013
By: Nicolas Jacquemet (EEP-PSE – Ecole d’Économie de Paris – Paris School of Economics – Ecole d’Économie de Paris, BETA – Bureau d’économie théorique et appliquée – CNRS : UMR7522 – Université de Strasbourg – Université Nancy II)
Adam Zylberstejn (EEP-PSE – Ecole d’Économie de Paris – Paris School of Economics – Ecole d’Économie de Paris, CES – Centre d’économie de la Sorbonne – CNRS : UMR8174 – Université Paris I – Panthéon-Sorbonne)
URL: http://d.repec.org/n?u=RePEc:hal:cesptp:halshs-00845123&r=net
We experimentally study an asymmetric coordination game with two Nash equilibria: one is Pareto-efficient, the other is Pareto-inefficient and involves a weakly dominated strategy. We assess whether information about the interaction partner helps eliminate the imperfect equilibrium. Our treatments involve three information-enhancing mechanisms: repetition and two kinds of individual signals: messages from partner or observation of his past choices. Repetition-based learning increases the frequencies of the most efficient outcome and the most costly strategic mismatch. Moreover, it is superseded by individual signals. Like previous empirical studies, we find that signals provide a screening of partners’ intentions that reduces the frequency of coordination failures. Unlike these studies, we find that the transmission of information between partners, either via messages or observation, does not suffice to significantly increase the overall efficiency of outcomes. This happens mostly because information does not restrain the choice of the dominated action by senders.
Keywords: coordination game; communication; cheap-talk; observation

Are Behavioral Choices in the Ultimatum and Investment Games Strategic?

Date: 2012-09
By: Lora R. Todorova (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
Bodo Vogt (Faculty of Economics and Management, Otto-von-Guericke University Magdeburg)
URL: http://d.repec.org/n?u=RePEc:mag:wpaper:120021&r=net
This paper experimentally examines the relationship between self-reporting risk preferences and behavioral choices in the subsequently played dictator, ultimatum and investment games. The results from these experiments are used to discern the motivational bases of behavioral choices in the ultimatum and investment games. The focus is on investigating whether strategic considerations are important for strategy selection in the two games. We find that self-reporting risk preferences does not alter the dictators’ offers and trusters’ investments, while it significantly decreases the proposers’ offers and leads to a substantial decrease in the amount trustees give back to their partners. We interpret these results as evidence that the decisions of proposers in the ultimatum game and trustees in the investment game are strategic.
Keywords: coordination game, dictator game, ultimatum game, investment game, questionnaire, risk scale, risk preferences
JEL: C7

EXPERIMENTAL EVIDENCE ON THE ‘INSIDIOUS’ ILLIQUIDITY RISK

EXPERIMENTAL EVIDENCE ON THE ‘INSIDIOUS’ ILLIQUIDITY RISK

Date: 2011-06-21
By: Damien Besancenot (CEPN – Centre d’Economie de l’Université Paris Nord – Université Paris-Nord – Paris XIII – CNRS : UMR7234)
Radu Vranceanu (Economics Department – ESSEC Business School)
URL: http://d.repec.org/n?u=RePEc:hal:cepnwp:halshs-00602107&r=net
This paper brings experimental evidence on investors’ behavior subject to an “illiquidity" constraint, where the success of a risky project depends on the participation of a minimum number of investors. The experiment is set up as a frameless coordination game that replicates the investment context. Results confirm the insidious nature of the illiquidity risk: as long as a first illiquidity default does not occur, investors do not seem able to fully internalize it. After several defaults, agents manage to coordinate on a default probability above which they refuse to participate to the project. This default probability is lower than the default probability of the first illiquidity default.
Keywords: Coordination game, Illiquidity risk, Threshold strategy, Experimental economics