The power of sunspots: An experimental analysis

Dietmar Fehr, Frank Heinemann and Aniol Llorente-Saguer

Journal of Monetary Economics, 2019, vol. 103, issue C, 123-136

Abstract: In an experiment using a coordination game with extrinsic random signals (“sunspots”), we systematically vary the stochastic process generating these signals and measure how signals affect behavior. We find that sunspot equilibria emerge naturally with salient public signals. However, highly correlated private signals can also lead to sunspot-driven behavior, even when this is not an equilibrium. Private signals reduce the power of public signals as sunspot variables. The higher the correlation of extrinsic signals and the more easily they can be aggregated, the more powerful these signals are in distracting actions from the action that minimizes strategic uncertainty.

Keywords: Coordination games; Strategic uncertainty; Sunspot equilibria; Forward guidance; Expectations (search for similar items in EconPapers)
JEL-codes: C92 D82 D83 E39 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: The Power of Sunspots: an Experimental Analysis (2017)
Working Paper: The power of sunspots: an experimental analysis (2013)
Working Paper: The Power of Sunspots: An Experimental Analysis (2011)
Working Paper: The power of sunspots: An experimental analysis (2011)
Working Paper: The Power of Sunspots: An Experimental Analysis (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:103:y:2019:i:c:p:123-136

DOI: 10.1016/j.jmoneco.2018.08.006

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