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Pre-play communication with forgone costly messages: experimental evidence on forward induction


Blume, Andreas; Kriss, Peter H; Weber, Roberto A (2014). Pre-play communication with forgone costly messages: experimental evidence on forward induction. Working paper series / Department of Economics No. 34, University of Zurich.

Abstract

We study communication in a two-player coordination game with Pareto-ranked equilibria. Prior research demonstrates that efficient coordination is difficult without communication but obtains regularly with (mandatory) costless pre-play messages. In a laboratory experiment, we modify communication by making the sending of messages optional and costly. Even small costs dramatically reduce message use, but efficient coordination of actions occurs with similar frequency to that observed under costless communication. Our results can be accounted for by Govindan and Wilson's formalization of forward induction (GW-FI), which selects, among the pure-strategy equilibrium outcomes, the one in which efficiency is achieved without communication. Consistent with the introspective character of GW-FI, the fraction of players who achieve efficient coordination by forgoing the use of reasonably costly optional messages is substantial from the first period, is remarkably stable at that level, and is not significantly affected by learning.

We study communication in a two-player coordination game with Pareto-ranked equilibria. Prior research demonstrates that efficient coordination is difficult without communication but obtains regularly with (mandatory) costless pre-play messages. In a laboratory experiment, we modify communication by making the sending of messages optional and costly. Even small costs dramatically reduce message use, but efficient coordination of actions occurs with similar frequency to that observed under costless communication. Our results can be accounted for by Govindan and Wilson's formalization of forward induction (GW-FI), which selects, among the pure-strategy equilibrium outcomes, the one in which efficiency is achieved without communication. Consistent with the introspective character of GW-FI, the fraction of players who achieve efficient coordination by forgoing the use of reasonably costly optional messages is substantial from the first period, is remarkably stable at that level, and is not significantly affected by learning.

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Additional indexing

Item Type:Working Paper
Communities & Collections:03 Faculty of Economics > Department of Economics
Working Paper Series > Department of Economics
Dewey Decimal Classification:330 Economics
JEL Classification:C72, C92, D83
Language:English
Date:September 2014
Deposited On:25 Nov 2011 10:13
Last Modified:05 Apr 2016 15:08
Series Name:Working paper series / Department of Economics
Number of Pages:40
ISSN:1664-7041
Additional Information:Revised version
Official URL:http://www.econ.uzh.ch/static/wp/econwp034.pdf
Related URLs:http://www.econ.uzh.ch/static/workingpapers.php
Permanent URL: http://doi.org/10.5167/uzh-51538

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