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Overcoming coordination failure through neighborhood choice ~ An experimental study~

Overcoming coordination failure through neighborhood choice ~ An experimental study~. Arno Riedl Ingrid M.T. Rohde Martin Strobel. Maastricht University. Introduction: Why ?. Laboratory: people fail to coordinate on surplus maximizing equilibria

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Overcoming coordination failure through neighborhood choice ~ An experimental study~

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  1. Overcoming coordination failure through neighborhood choice~An experimental study~ Arno Riedl Ingrid M.T. Rohde Martin Strobel Maastricht University

  2. Introduction: Why ? • Laboratory: people fail to coordinate on surplus maximizing equilibria • Reality: people able to agree on rather efficient arrangements ∆? Largely neglected in the experimental and theoretical economic literature Our hypothesis Endogenous choice of interaction partners is a powerful force to achieve coordination on the payoff dominant equilibrium  Interaction structure Possibility to choose interaction partners

  3. Coordination game Representation during experiment your colour colour of your your earnings earnings of your neighbour neighbour blue blue 95 points 95 points blue green 5 points 90 points green blue 90 points 5 points green green 75 points 75 points Payoff dominant equilibrium Risk dominant equilibrium

  4. Experiment: RepeatedNetwork Game • group size = 6 players • two time blocks of 30 periods • full information • Decisions player i: • Network formation  #neighbors Two parameters: • One-sided vs.two-sidedlink formation • Costlessvs. costlylink formation • Coordination game: 1 strategy simultaneously

  5. Implications Network Game • Link formation 6 players Total possible # links proposed: 30 links Total possible # links formed: 15 links • Coordination game Bluevery risky complete network  need all 5 other players to play B in order for you to play B as well

  6. Experiment: Treatments • Experimental treatments Cost forming link = 80 points • Control treatment : exogenously fixed complete network  search “stable” equilibrium strategy & network structure

  7. Repeated network game:our predictions One-sided, costless Two-sided, costless no threat punishment hunt Punishment: efficiency enforcers trade off rd versus pd action complete network payoff dominance complete network risk dominance One sided, costly Control treatment small & unstable networks risk dominance Additional coordination problem no threat punishment

  8. Actual Experiment • Computerized experimental sessions at BEE laboratory Maastricht • 210 subjects: Students Maastricht University Each treatment : 3 sessions 1 session == 18 subjects 9 independent 1 group == 6 subjects observations One sided costly: 8 observations • Each session took approximately two hours • Average earning per subject: 26.05 Euro

  9. Frequencypayoff dominant play part 1 1 .8 .6 Frequency .4 .2 0 10 20 30 Round one sided costly one sided costless two sided costless full fixed Results: what is actually played Round 1 No significant ∆ among the four treatments in payoff dominant play Overall (1) Significant ∆ treatments with endogenous network structure vs. control treatment Overall (2) Increase played payoff dominant eq played with endogenous network structure, decrease in control treatment payoff dominant equilibrium / total play

  10. Network density Excess links Part I Part I 1 .8 .6 Frequency Frequency .5 .4 .4 .3 .2 .1 0 0 10 20 30 0 10 20 30 Round Round one sided costly one sided costless one sided costly one sided costless two sided costless two sided costless full fixed Network: link structure Overall: One sided costless: complete network Two sided costless: punishment One sided costly: additional coordination problem Overall: One sided costless: all links proposed Two sided costless: no full reciprocation efficiency enforcers One sided costly: add.coordination problem not solved

  11. 1 1 .8 .8 .6 .6 .4 .4 .2 .2 0 0 ff 2snoc 1snoc 1sc ff 2snoc 1snoc 1sc frpdpd frpr frpdpd frpr frrdrd frrdrd frnoplay Results: play Actual play/ total actual play Actual # Play / 15 Total play/ possible play Overall: One sided costly: coordination problem Two sided costless: much eq. play less off eq. play Overall: Two sided costless:CG not always played One sided costly: CG not always played Overall: Endogenous treatments: surplus max. eq. Costly highest coordination surplus max. eq.

  12. Further tests: Why these results? • Network structure vs action choice • Action choice history vs. link proposal • Individual data on: • risk preferences: ten paired lottery (Holt Laurey, 2002) • Generalized preferences on equality & efficiency • personality traits: Brandstaetter 32 questions

  13. Conclusion Our hypothesis Endogenous choice of interaction partners is a powerful force to achieve coordination on the payoff dominant equilibrium  strong support for our hypothesis!

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