Efficient Coordination in Weakest-Link Games
46 Pages Posted: 5 Jan 2012
There are 2 versions of this paper
Efficient Coordination in Weakest-Link Games
Efficient Coordination in Weakest-Link Games
Date Written: December 30, 2011
Abstract
Existing experimental research on behavior in weakest-link games shows overwhelmingly the inability of people to coordinate on the efficient equilibrium, especially in larger groups. We hypothesize that people will be able to coordinate on efficient outcomes, provided they have sufficient freedom to choose their interaction neighborhood. We conduct experiments with medium sized and large groups and show that neighborhood choice indeed leads to coordination on the fully efficient equilibrium, irrespective of group size. This leads to substantial welfare effects. Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice than without neighborhood choice. We identify exclusion as the simple but very effective mechanism underlying this result. In early rounds, high performers exclude low performers who in consequence ‘learn’ to become high performers.
Keywords: efficient coordination, weakest-link, minimum effort, neighborhood choice, experiment
JEL Classification: C720, C920, D020, D030, D850
Suggested Citation: Suggested Citation
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