The Power of Sunspots: An Experimental Analysis

49 Pages Posted: 26 Jun 2013

See all articles by Dietmar Fehr

Dietmar Fehr

Heidelberg University - Alfred Weber Institute for Economics

Frank Heinemann

Berlin Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute)

Aniol Llorente-Saguer

Queen Mary University of London

Multiple version iconThere are 2 versions of this paper

Date Written: October 18, 2012

Abstract

The authors show how the influence of extrinsic random signals depends on the noise structure of these signals. They present an experiment on a coordination game in which extrinsic random signals may generate sunspot equilibria. They measure how these signals affect behavior. Sunspot equilibria emerge naturally if there are salient public signals. Highly correlated private signals may also cause sunspot-driven behavior, even though this is no equilibrium. The higher the correlation of signals and the more easily these can be aggregated, the more powerful these signals are in moving actions way from the risk-dominant equilibrium.

Keywords: coordination games, strategic uncertainty, sunspot equilibria, irrelevant information

JEL Classification: C9, D5

Suggested Citation

Fehr, Dietmar and Heinemann, Frank and Llorente-Saguer, Aniol, The Power of Sunspots: An Experimental Analysis (October 18, 2012). FRB of Boston Working Paper No. 13-2, Available at SSRN: https://ssrn.com/abstract=2285039 or http://dx.doi.org/10.2139/ssrn.2285039

Dietmar Fehr (Contact Author)

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Frank Heinemann

Berlin Institute of Technology ( email )

Strasse des 17. Juni 135
H 52
Berlin, 10623
Germany

HOME PAGE: http://www.macroeconomics.tu-berlin.de/Heinemann.html

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Aniol Llorente-Saguer

Queen Mary University of London ( email )

Lincoln's Inn Fields
Mile End Rd.
London, E1 4NS
United Kingdom

HOME PAGE: http://https://sites.google.com/site/aniollls/

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