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Discontinuous and Continuous Stochastic Choice and Coordination in the Lab

Goryunov, Maxim and Rigos, Alexandros LU (2020) In Working Papers
Abstract
Coordination games have multiple equilibria under complete information. However, recent theoretical advances show that if players are uncertain but can acquire information about a payoff-relevant state of the world, the number of equilibria depends on whether they can implement strategies (stochastic choice rules) discontinuous in the state. We experimentally test these results in a two-player investment game. Through a minimal visual variation in the design (our treatment) we prompt participants to play strategies whereby their probability to invest is either continuous or discontinuous in the payoff-relevant state. When participants use continuous strategies, average behavior is consistent with play in the risk-dominant equilibrium, the... (More)
Coordination games have multiple equilibria under complete information. However, recent theoretical advances show that if players are uncertain but can acquire information about a payoff-relevant state of the world, the number of equilibria depends on whether they can implement strategies (stochastic choice rules) discontinuous in the state. We experimentally test these results in a two-player investment game. Through a minimal visual variation in the design (our treatment) we prompt participants to play strategies whereby their probability to invest is either continuous or discontinuous in the payoff-relevant state. When participants use continuous strategies, average behavior is consistent with play in the risk-dominant equilibrium, the unique theoretical prediction. When they use discontinuous strategies—in¬¬ which case there are multiple equilibria—average behavior is closer to the payoff-dominant equilibrium strategy. Additionally, we extend the theory to heterogeneous populations: the set of equilibria monotonically decreases in the proportion of players who use continuous strategies. (Less)
Please use this url to cite or link to this publication:
author
and
organization
publishing date
type
Working paper/Preprint
publication status
published
subject
keywords
Coordination, Global games, Information acquisition, Continous stochastic choice, Visual information, Experiment, Perception, C72, C92, D83
in
Working Papers
issue
2020:17
pages
59 pages
language
English
LU publication?
yes
id
54a52033-37f1-447c-bb9c-e305964b4bf7
date added to LUP
2020-09-02 11:28:33
date last changed
2025-04-04 14:31:24
@misc{54a52033-37f1-447c-bb9c-e305964b4bf7,
  abstract     = {{Coordination games have multiple equilibria under complete information. However, recent theoretical advances show that if players are uncertain but can acquire information about a payoff-relevant state of the world, the number of equilibria depends on whether they can implement strategies (stochastic choice rules) discontinuous in the state. We experimentally test these results in a two-player investment game. Through a minimal visual variation in the design (our treatment) we prompt participants to play strategies whereby their probability to invest is either continuous or discontinuous in the payoff-relevant state. When participants use continuous strategies, average behavior is consistent with play in the risk-dominant equilibrium, the unique theoretical prediction. When they use discontinuous strategies—in¬¬ which case there are multiple equilibria—average behavior is closer to the payoff-dominant equilibrium strategy. Additionally, we extend the theory to heterogeneous populations: the set of equilibria monotonically decreases in the proportion of players who use continuous strategies.}},
  author       = {{Goryunov, Maxim and Rigos, Alexandros}},
  keywords     = {{Coordination; Global games; Information acquisition; Continous stochastic choice; Visual information; Experiment; Perception; C72; C92; D83}},
  language     = {{eng}},
  month        = {{08}},
  note         = {{Working Paper}},
  number       = {{2020:17}},
  series       = {{Working Papers}},
  title        = {{Discontinuous and Continuous Stochastic Choice and Coordination in the Lab}},
  url          = {{https://lup.lub.lu.se/search/files/195817825/WP20_17.pdf}},
  year         = {{2020}},
}