The Power of Sunspots: An Experimental Analysis

Frank Heinemann, Aniol Llorente-Saguer and Dietmar Fehr

VfS Annual Conference 2011 (Frankfurt, Main): The Order of the World Economy - Lessons from the Crisis from Verein für Socialpolitik / German Economic Association

Abstract: We present an experiment in which extrinsic signals may generate sunspot equilibria. The game has a unique symmetric non-sunspot equilibrium, which is also risk dominant. Other equilibria can be ordered according to risk dominance. By comparing treatments with different information structure, we measure the force of extrinsic signals. Results indicate that Sunspot equilibria emerge naturally, if there are salient (but extrinsic) public signals. However, salient private signals of high precision may also cause sunspot-like behavior even though this is no equilibrium. The higher the precision of signals and the easier they can be aggregated, the more powerful they are in dragging behavior away from the risk dominant to risk dominated strategies.

Keywords: coordination games; strategic uncertainty; sunspot equilibria; irrelevant information (search for similar items in EconPapers)
JEL-codes: C72 C92 D84 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (14)

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Related works:
Journal Article: The power of sunspots: An experimental analysis (2019)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc11:48724

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