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The Power of Sunspots: an Experimental Analysis

Dietmar Fehr, Frank Heinemann () and Aniol Llorente-Saguer ()

No 11, Rationality and Competition Discussion Paper Series from CRC TRR 190 Rationality and Competition

Abstract: This paper presents an experiment on a coordination game with extrinsic random signals, in which we systematically vary the stochastic process generating these signals and measure how signals affect behavior. We find that sunspot equilibria emerge naturally if there are 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 E58 (search for similar items in EconPapers)
Date: 2017-03-25
New Economics Papers: this item is included in nep-exp, nep-gth, nep-mac and nep-ore
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Related works:
Journal Article: The power of sunspots: An experimental analysis (2019) Downloads
Working Paper: The power of sunspots: an experimental analysis (2013) Downloads
Working Paper: The Power of Sunspots: An Experimental Analysis (2011) Downloads
Working Paper: The Power of Sunspots: An Experimental Analysis (2011) Downloads
Working Paper: The Power of Sunspots: An Experimental Analysis (2011) Downloads
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