Discontinuous and Continuous Stochastic Choice and Coordination in the Lab

Research output: Working paper

Abstract

Coordination games have multiple equilibria under complete information. However, recent theoretical advances show that if players are uncertain but can acquire information about a payoff-relevant state of the world, the number of equilibria depends on whether they can implement strategies (stochastic choice rules) discontinuous in the state. We experimentally test these results in a two-player investment game. Through a minimal visual variation in the design (our treatment) we prompt participants to play strategies whereby their probability to invest is either continuous or discontinuous in the payoff-relevant state. When participants use continuous strategies, average behavior is consistent with play in the risk-dominant equilibrium, the unique theoretical prediction. When they use discontinuous strategies—in¬¬ which case there are multiple equilibria—average behavior is closer to the payoff-dominant equilibrium strategy. Additionally, we extend the theory to heterogeneous populations: the set of equilibria monotonically decreases in the proportion of players who use continuous strategies.

Details

Authors
Organisations
External organisations
  • Nazarbayev University
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Economics

Keywords

  • Coordination, Global games, Information acquisition, Continous stochastic choice, Visual information, Experiment, Perception, C72, C92, D83
Original languageEnglish
Number of pages59
Publication statusPublished - 2020 Aug 31
Publication categoryResearch

Publication series

NameWorking Papers
PublisherLund University, Department of Economics
No.2020:17