If Nobody is Going There Anymore Because it's Too Crowded, Then Who is Going? Experimental Evidence of Learning And Imitation in the El Farol Coordination Game

Abstract

This paper is a study of Yogi Berra's colorful non sequitur: Nobody goes there anymore. It's too crowded. Many economic markets remind one of Berra's insightful observation. One desires to buy an asset, such as a stock, when more people are selling than buying. However, this situation increases the number of buyers and tips the market to favor sellers. This paper evaluates coordination among agents in these environments. In particular, this paper discusses how people implicitly learn to coordinate their actions when such coordination is beneficial, but difficult. It uses the experimental method pioneered by Nobel Laureate Vernon Smith. During a series of experiments involving human subjects and simulated agents, subjects repeatedly update their strategies during play of a coordination game known as the El Farol Bar Game. In this experiment a subject is able to partially observe her opponents' previous strategies and payoffs before setting her strategy for the next round of play. Results indicate that play did not converge to the stage game's pure strategy Nash equilibrium. Also, subjects routinely imitated the most successful strategies. This flocking behavior led to socially inefficient outcomes.