Abstract
AbstractGlobal games and Poisson games have been proposed to address equilibrium indeterminacy in Common Knowledge Coordination games. The present study investigates in a controlled setup, using as controls Common Knowledge games, whether idiosyncratic uncertainty about economic fundamentals (Global games) or uncertainty about the number of actual players (Poisson games) may influence subjects' behavior. We find that uncertainty about the number of actual players has more influence on subjects' behavior than idiosyncratic uncertainty about economic fundamentals. Furthermore, subjects' behavior under Poisson population‐size uncertainty is closer to the respective theoretical prediction than subjects' behavior under idiosyncratic uncertainty about economic fundamentals.
Highlights
Coordination games with strategic complementarities have been widely used to capture setups, such as speculative attacks, start-up investments and new technology adoption under network externalities (see e.g. Milgrom and Roberts (1990), Obstfeld (1996))
We find that uncertainty about the number of actual players has a more significant impact on subjects’ behavior than idiosyncratic uncertainty about economic fundamentals when we focus on parameters for which both Poisson and Global games predict a unique equilibrium
Our findings suggest that uncertainty about the number of actual players has a more significant impact on subjects’ behavior than idiosyncratic uncertainty about economic fundamentals, when these two types of uncertainty lead to a prediction of a unique equilibrium
Summary
Coordination games with strategic complementarities have been widely used to capture setups, such as speculative attacks, start-up investments and new technology adoption under network externalities (see e.g. Milgrom and Roberts (1990), Obstfeld (1996)). To escape a prediction of indeterminancy of equilibria, the received theoretical literature has focused on uncertainty about fundamentals Global Coordination games (see Morris and Shin (1998)) constitute the most popular approach to escape the prediction of equilibrium indeterminacy by means of deploying uncertainty about economic fundamentals (e.g. the profitability of a successful speculative attack). A more recent approach, Poisson Coordination games, is motivated instead by the fact that, in the above strategic environments, the number of economic agents is often very large. Following the suggestion of Myerson (2000), this approach models the number of actual players as a Poisson random variable (see Makris (2008)).
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