Risk dominance and coordination failures in static games

Abstract

This article presents: (1) arguments comparing the use of Harsanyi and Selten's risk dominance (a measure of the ‘risk’ associated with choosing an action which supports an equilibrium) and payoff dominance as equilibrium selection criteria; (2) new experimental evidence which suggests the existence of a payoff dominated risk dominant equilibrium is a necessary (but not sufficient) condition for coordination failure and the existence of a tradeoff between risk dominance and payoff dominance; and (3) new experimental evidence which links risk dominance and payoff dominance to the speed of convergence to equilibrium.