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)

Example 1: Symmetric Game

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

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

Asymmetric with Unique Nash Equilibrium (Game 2)

Coordination Games * Strategy 3 is always dominated by strategy 1

Coordination Games * Strategy 3 is always dominated by strategy 1

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”.

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.

Results from Game 1

Results from Game 2

Coordination Games * Strategy 3 is always dominated by strategy 1

Games 3-6: Last 11 Periods

Games 3-6: Last 5 Periods

Games 7-8: Last 11 Periods

Games 7-8: Last 5 Periods

Transition Matrix

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”.