Measuring strategic uncertainty in coordination games

Frank Heinemann, Rosemarie Nagel and Peter Ockenfels

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

Abstract: This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment we measure subjects’ certainty equivalents for three coordination games and one lottery. Behavior in coordination games is related to risk aversion, experience seeking, and age. From the distribution of certainty equivalents we estimate probabilities for successful coordination in a wide range of games. For many games, success of coordination is predictable with a reasonable error rate. The best response to observed behavior is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Estimating probabilistic decision models, we show that the quality of predictions can be improved when individual characteristics are taken into account. Subjects’ behavior is consistent with probabilistic beliefs about the aggregate outcome, but inconsistent with probabilistic beliefs about individual behavior.

Keywords: Belief Formation; Coordination Games; Global Game; Lotteries; Risk Aversion; Strategic Uncertainty; Leex (search for similar items in EconPapers)
JEL-codes: C72 C91 D81 D84 (search for similar items in EconPapers)
Date: 2004-12
New Economics Papers: this item is included in nep-cbe, nep-exp and nep-gth
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
https://econ-papers.upf.edu/papers/804.pdf Whole Paper (application/pdf)

Related works:
Journal Article: Measuring Strategic Uncertainty in Coordination Games (2009)
Working Paper: Measuring Strategic Uncertainty in Coordination Games (2004)
Working Paper: Measuring Strategic Uncertainty in Coordination Games (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:upf:upfgen:804

Access Statistics for this paper

More papers in Economics Working Papers from Department of Economics and Business, Universitat Pompeu Fabra
Bibliographic data for series maintained by ( this e-mail address is bad, please contact ).