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Equilibrium selection through incomplete information in coordination games: An experimental study

Rosemarie Nagel (), Antonio Cabrales () and Roc Armenter ()

Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra

Abstract: We perform an experiment on a pure coordination game with uncertainty about the payoffs. Our game is closely related to models that have been used in many macroeconomic and financial applications to solve problems of equilibrium indeterminacy. In our experiment each subject receives a noisy signal about the true payoffs. This game has a unique strategy profile that survives the iterative deletion of strictly dominated strategies (thus a unique Nash equilibrium). The equilibrium outcome coincides, on average, with the risk-dominant equilibrium outcome of the underlying coordination game. The behavior of the subjects converges to the theoretical prediction after enough experience has been gained. The data (and the comments) suggest that subjects do not apply through "a priori" reasoning the iterated deletion of dominated strategies. Instead, they adapt to the responses of other players. Thus, the length of the learning phase clearly varies for the different signals. We also test behavior in a game without uncertainty as a benchmark case. The game with uncertainty is inspired by the "global" games of Carlsson and Van Damme (1993).

Keywords: Global games; risk dominance; equilibrium selection; common knowledge; Leex (search for similar items in EconPapers)
JEL-codes: C72 C91 C92 D82 G10 G21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-exp
Date: 2002-02
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Journal Article: Equilibrium selection through incomplete information in coordination games: an experimental study (2007) Downloads
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