The Effect of Hysteresis on Equilibrium Selection in Coordination Games

Julian Romero

Purdue University Economics Working Papers from Purdue University, Department of Economics

Abstract: One of the fundamental problems in both economics and organization is to understand how individuals coordinate. The widely used minimum-effort coordination game has been used as a simplifed model to better understand this problem. This paper first presents some theoretical results that give conditions under which the minimum-effort coordination game exhibits hysteresis. Using these theoretical results, some experimental hypotheses are developed and then confirmed using human subjects in the laboratory. The main insight is that play in a given game is heavily dependent on the history of parameters leading up to that game. For example, the experiments show when cost c = 0:5 in the minimum-effort coordination game, there is signifcantly more high effort if the cost has increased to c = 0:5 compared to when the cost has decreased to c = 0:5. One implication of this is that a temporary change in parameters may be able move the economic system from a bad equilibrium to a good equilibrium.

Keywords: Hysteresis; Minimum-effort Coordination Game; Logit Equilibrium; Experimental Economics; Equilibrium Selection (search for similar items in EconPapers)
JEL-codes: C72 C92 M53 (search for similar items in EconPapers)
Pages: 28 pages
Date: 2011-09
New Economics Papers: this item is included in nep-evo, nep-exp, nep-gth and nep-hpe
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Persistent link: https://EconPapers.repec.org/RePEc:pur:prukra:1265

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