Abstract
We run a laboratory experiment to test the concept of coarse correlated equilibrium (Moulin and Vial in Int J Game Theory 7:201–221, 1978), with a two-person game with unique pure Nash equilibrium which is also the solution of iterative elimination of strictly dominated strategies. The subjects are asked to commit to a device that randomly picks one of three symmetric outcomes (including the Nash point) with higher ex-ante expected payoff than the Nash equilibrium payoff. We find that the subjects do not accept this lottery (which is a coarse correlated equilibrium); instead, they choose to play the game and coordinate on the Nash equilibrium. However, given an individual choice between a lottery with equal probabilities of the same outcomes and the sure payoff as in the Nash point, the lottery is chosen by the subjects. This result is robust against a few variations. We explain our result as selecting risk-dominance over payoff dominance in equilibrium.
Highlights
The problem of multiple equilibria and coordination in games, even in a 2 × 2 game, has been one of the major themes of research in experimental economics (Cooper et al 1989, 1990, 1992; Van Huyck et al 1990, 1991, 1992; Straub 1995)
This paper provides a new result and insight: our subjects do not commit to a correlation device that picks, with equal probability, the pure Nash outcome and other symmetric outcomes around Nash point of the game; they do accept a lottery, mimicking the device, as an individual choice
We report the observations from an experiment comparing the level of the Nash equilibrium outcome played by the subjects in a game with unique pure Nash equilibrium, with and without the help of a specific correlation device
Summary
The problem of multiple equilibria and coordination in games, even in a 2 × 2 game, has been one of the major themes of research in experimental economics (Cooper et al 1989, 1990, 1992; Van Huyck et al 1990, 1991, 1992; Straub 1995). Awaya and Krishna (2019, 2020) studied the role of in-play communication in repeated games and linked the Nash equilibrium to the coarse correlated equilibrium payoffs of the single-shot game due to the computational ease of the latter This kind of structure is common to many economic situations of interest, such as, expending effort (Fleckinger 2012; Deb et al 2016), contributing towards public good (Moulin et al 2014), gathering information (Gromb and Martimort 2007)
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