Outline

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. From Unique Equilibrium  Multiple Equilibria • pBC, Centipede Game  Unique Nash equilibrium • People do not play the unique Nash equilibrium • Every strategy is a Nash equilibrium (i.e., Nash does not produce a sharp prediction)

3. The Weakest-Link Game • n players • Strategy space =

4. Game A: a =$0.2, b=0.1, c=$0.6

5. Hypotheses: Deductive vs. Inductive Principles • Payoff Dominance • Security (Maximin} • History dependent • For t > 1, minimum (t) = minimum (1) =

6. Game B: a=$0.2, b=$0.0, c=$0.6

7. Experimental Design * Only minimum was announced after every round

8. Hypotheses • Payoff Dominance: {7, …, 7} in A and B • Security (Maximin}: {1,…, 1} in A but not in B • For t > 1, minimum (t) =

9. Results of Treatment A

10. Results of Treatment A

11. Results of Treatment B and A’

12. Results of Treatment C: Fixed Pairings

13. Results of Treatment C: Fixed Pairing

14. Experimental Design * Only minimum was announced after every round

15. Results of Treatment C: Random Pairings

16. Full Distribution of Choices

17. Summary • The presence of strategic uncertainty (2 possible equilibrium selection principle) results in coordination failure and inefficient outcome • The first-best outcome of payoff-dominance is unlikely, both initially and with repeated plays • With repeated plays, subjects converge on secure but the most inefficient equilibrium