Outline  In-Class Experiment on a Coordination Game  Test of Equilibrium Selection I :Van Huyck, Battalio, and Beil (1990)  Test of Equilibrium Selection.

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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)

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)

The Weakest-Link Game  n players  Strategy space =

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

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

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

Experimental Design * Only minimum was announced after every round

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

Results of Treatment A

Results of Treatment B and A’

Results of Treatment C: Fixed Pairings

Results of Treatment C: Fixed Pairing

Experimental Design * Only minimum was announced after every round

Results of Treatment C: Random Pairings

Full Distribution of Choices

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