06 Communication_and.pdfVIP

COMMUNICATION AND EFFICIENCY IN COORDINATION GAME EXPERIMENTS Anthony Burton, Graham Loomes and Martin Sefton ABSTRACT We examine the effects of pre-play communication in an experimental game with con?icting risk-dominant and payoff-dominant equilibria. We ?nd that most players condition their choices on the messages received, and do so in an intuitive way, announcing an intention to play the payoff- dominant action, and choosing the payoff-dominant action if the opponent expresses the same intention. However, a significant minority of players misrepresent their intentions. In some sessions where these players appear, behavior converges to an equilibrium in which subjects misrep- resent their intentions and play the risk-dominant equilibrium. 1. INTRODUCTION In this chapter, we explore the role of communication in selecting among equilibria of a simple coordination game. The game of interest is shown in Fig. 1, and has two pure strategy equilibria: S, S , which is risk-dominant, and R, R , which is payoff-dominant. There are con?icting views about Experimental and Behavioral Economics Advances in Applied Microeconomics, Volume 13, 63–85 Copyright r 2005 by Elsevier Ltd. All rights of reproduction in any form reserved ISSN: 0278-0984/doi:10.1016/S0278-0984 05 13003-X 63 64 ANTHONY BURTON ET AL. Column Player R S Row R 1000, 1000 0, 900 Player S 900, 0 700, 700 Fig. 1. Payoff Matrix for CKS Game. how pre-play communication will affect outcomes: one view is that oppor- tunities for players to communicate with one another prior to playing the game will have no effect, while another suggests that communication will enable players to attain the payoff-dominant equilibrium. Aumann 1990 makes a logical argument that any message should carry no information, while Farrell and Rabin 1996 feel that cheap talk will help players coor- dinate on the ef?cient equili