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Outline. In-Class Experiment on a Coordination Game Test of Equilibrium Selection I :Van Huyck, Battalio, and Beil (1990) Test of Equilibrium Selection II :Van Huyck, Battalio, and Beil (1991) Test of Equilibrium Selection III : Copper, DeJong, Forsythe, and Ross (1990).

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Outline

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  1. Outline • In-Class Experiment on a Coordination Game • Test of Equilibrium Selection I :Van Huyck, Battalio, and Beil (1990) • Test of Equilibrium Selection II :Van Huyck, Battalio, and Beil (1991) • Test of Equilibrium Selection III : Copper, DeJong, Forsythe, and Ross (1990)

  2. Example 1: Symmetric Game

  3. Hypotheses • The outcome will be a Nash equilibrium: 1 or 2 • Payoff Dominance: 2 • Irrelevance of dominated alternatives: Dominated strategies are irrelevant to equilibrium selection: 3 will not affect choice

  4. Warm-up Task: Dominant Strategy Equilibrium (Game 1)

  5. Asymmetric with Unique Nash Equilibrium (Game 2)

  6. Coordination Games * Strategy 3 is always dominated by strategy 1

  7. Coordination Games * Strategy 3 is always dominated by strategy 1

  8. Games 7-8 • Move the “cooperative outcome” from (3,3) to (2,2) • If players place prior probability weight on strategy 3, this can influence their choice. • We can use Games 7 (8) (Games 4 (3)) to separate whether players believe that the opponents are “cooperative” or “irrational”.

  9. Experimental Design • Section I: 11 Subjects, each played 10 rounds (Dominant Strategy Equilibrium) in 11 periods. • Section II: Each subject played one of the games (Games 2-8) 20 rounds in 22 periods.

  10. Results from Game 1

  11. Results from Game 2

  12. Coordination Games * Strategy 3 is always dominated by strategy 1

  13. Games 3-6: Last 11 Periods

  14. Games 3-6: Last 5 Periods

  15. Games 7-8: Last 11 Periods

  16. Games 7-8: Last 5 Periods

  17. Transition Matrix

  18. Summary • Outcome will be from the set of Nash equilibria • Payoff Dominance is not a good selection principle • Irrelevance of dominated alternative is violated. • Importance of “cooperative outcome”.

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