Are sunspots learnable? An experimental investigation in a simple macroeconomic model

Abstract

We conduct experiments with human subjects in a model with a positive production externality in which productivity is a nondecreasing function of the average level of employment of other firms. The model has three steady states and a sunspot equilibrium that fluctuates between the high and low steady states. Steady states are payoff ranked: low values give lower profits than higher values. We investigate whether subjects can learn a sunspot equilibrium. We observe coordination on the extrinsic announcements in our experimental economies. Cases of apparent convergence to the low and high steady states are also observed.