Coordination problems triggered by sunspots in the laboratory

Jan Siebert and Guanzhong Yang

No 848, Ruhr Economic Papers from RWI - Leibniz-Institut für Wirtschaftsforschung, Ruhr-University Bochum, TU Dortmund University, University of Duisburg-Essen

Abstract: A sunspot variable is any random variable that is not related to fundamental factors of the economy but a potential coordination device. The coordination power of sunspots has been analysed in theory and in experiments. However, some have discussed whether sunspots, e.g., public announcements such as financial market ratings, can create coordination problems. That discussion reached a new peak during the European sovereign debt crisis. We ask: can a sunspot variable, in form of a random forecast, trigger coordination problems? To answer that, we use a repeated three-player stag hunt game with fixed groups. In our experiment, a sunspot variable points randomly at the risk-dominant or the payoff-dominant choice. We find out-of-equilibrium behaviour caused by the sunspot variable in the short run. In the long run, the sunspot variable can lead to coordination on payoff-dominated equilibria. Only if the sunspot variable points more often to the payoff-dominated alternative, some groups use the sunspot variable consistently as a coordination device.

Keywords: sunspot; coordination; equilibrium selection; correlated equilibria; focal point (search for similar items in EconPapers)
JEL-codes: C72 C92 D81 E40 J52 (search for similar items in EconPapers)
Date: 2020
New Economics Papers: this item is included in nep-exp and nep-ore
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Journal Article: Coordination problems triggered by sunspots in the laboratory (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:rwirep:848

DOI: 10.4419/86788983

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