Measuring Agents' Reaction to Private and Public Information in Games with Strategic Complementarities
20 Pages Posted: 8 Jan 2014
Date Written: January 7, 2014
In games with strategic complementarities, public information about the state of the world has a larger impact on equilibrium actions than private information of the same precision, because public signals are more informative about the likely behavior of others. We present an experiment in which agents’ optimal actions are a weighted average of the fundamental state and their expectations of other agents’ actions. We measure the responses to public and private signals. We find that, on average, subjects put a larger weight on the public signal. In line with theoretical predictions, as the relative weight of the coordination component in a player’s utility increases, players put more weight on the public signal when making their choices. However, the weight is smaller than in equilibrium, which indicates that subjects underestimate the information contained in public signals about other players’ beliefs.
Keywords: coordination games, strategic uncertainty, private information, public information
JEL Classification: C92, D82, D84
Suggested Citation: Suggested Citation