Nash versus coarse correlation

Konstantinos Georgalos, Indrajit Ray () and Sonali SenGupta ()
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Sonali SenGupta: Lancaster University

Experimental Economics, 2020, vol. 23, issue 4, No 10, 1178-1204

Abstract: Abstract We run a laboratory experiment to test the concept of coarse correlated equilibrium (Moulin and Vial in Int J Game Theory 7:201–221, 1978), with a two-person game with unique pure Nash equilibrium which is also the solution of iterative elimination of strictly dominated strategies. The subjects are asked to commit to a device that randomly picks one of three symmetric outcomes (including the Nash point) with higher ex-ante expected payoff than the Nash equilibrium payoff. We find that the subjects do not accept this lottery (which is a coarse correlated equilibrium); instead, they choose to play the game and coordinate on the Nash equilibrium. However, given an individual choice between a lottery with equal probabilities of the same outcomes and the sure payoff as in the Nash point, the lottery is chosen by the subjects. This result is robust against a few variations. We explain our result as selecting risk-dominance over payoff dominance in equilibrium.

Keywords: Correlation; Coordination; Lottery; Risk dominance (search for similar items in EconPapers)
JEL-codes: C72 C91 C92 D63 D83 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (8)

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DOI: 10.1007/s10683-020-09647-x

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