POTENTIAL MAXIMIZATION AND COALITION GOVERNMENT FORMATION

Rodney Garratt, James Parco, Cheng-Zhong Qin and Amnon Rapoport
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Cheng-Zhong Qin: University of California, Santa Barbara, Department of Economics, Santa Barbara, CA 93106, USA

International Game Theory Review (IGTR), 2005, vol. 07, issue 04, 407-429

Abstract: A model of coalition government formation is presented in which inefficient, non-minimal winning coalitions may form in Nash equilibrium. Predictions for five games are presented and tested experimentally. The experimental data support potential maximization as a refinement of Nash equilibrium. In particular, the data support the prediction that non-minimal winning coalitions occur when the distance between policy positions of the parties is small relative to the value of forming the government. These conditions hold in games 1, 3, 4 and 5, where subjects played their unique potential-maximizing strategies 91, 52, 82 and 84 percent of the time, respectively. In the remaining game (Game 2) experimental data support the prediction of a minimal winning coalition. Players A and B played their unique potential-maximizing strategies 84 and 86 percent of the time, respectively, and the predicted minimal-winning government formed 92 percent of the time (all strategy choices for player C conform with potential maximization in Game 2). In Games 1, 2, 4 and 5 over 98 percent of the observed Nash equilibrium outcomes were those predicted by potential maximization. Other solution concepts including iterated elimination of weakly dominated strategies and strong/coalition-proof Nash equilibrium are also tested.

Keywords: Coalition formation; potential maximization; Nash equilibrium refinements; experimental study; minimal winning; JEL Classification: C72; JEL Classification: C78; JEL Classification: D72 (search for similar items in EconPapers)
JEL-codes: B4 C0 C6 C7 D5 D7 M2 (search for similar items in EconPapers)
Date: 2005
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http://www.worldscientific.com/doi/abs/10.1142/S0219198905000612
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Related works:
Working Paper: Potential Maximization and Coalition Government Formation (2004)
Working Paper: Potential Maximization and Coalition Government Formation (2000)
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DOI: 10.1142/S0219198905000612

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