A Road to Efficiency through Communication and Commitment

71 Pages Posted: 11 May 2016 Last revised: 20 Jan 2019

See all articles by Ala Avoyan

Ala Avoyan

Indiana University

Joao Ramos

Marshall School of Business - University of Southern California

Date Written: January 1, 2019

Abstract

We examine the efficiency gains of introducing a pre-play phase—allowing agents to communicate while incrementally committing to their words—in coordination environments. We consider a particular pre-play institution for which the efficient equilibrium is unique in the extended game, and we test the environment in the lab. We focus on weak-link games, a coordination game with multiple Pareto ranked equilibria, in which an inferior equilibrium is often observed in experimental settings. We first show that the institution intertwining communication and incremental commitment significantly increases subjects' payoffs, even when compared to rich pure communication protocols. Aligned with theoretical predictions, commitment changes the way players communicate—affecting what is a player says and, moreover, how others interpret it. Finally, we focus on the road to efficiency; we analyze agents’ dynamic behavior as they try to coordinate, and we show that this behavior is closely aligned with theoretical predictions. The results shed new light on how pre-play institutions can mitigate coordination failures and highlight communication and incremental commitment as key features.

Keywords: Coordination Games, Revision Games, Continuous Monitoring, Minimum Effort Game

JEL Classification: C73, C92, P41

Suggested Citation

Avoyan, Ala and Ramos, Joao, A Road to Efficiency through Communication and Commitment (January 1, 2019). Available at SSRN: https://ssrn.com/abstract=2777644 or http://dx.doi.org/10.2139/ssrn.2777644

Ala Avoyan (Contact Author)

Indiana University ( email )

Bloomington, IN
United States

Joao Ramos

Marshall School of Business - University of Southern California ( email )

701 Exposition Boulevard, STE 205
Los Angeles, CA 90089-1422
United States

HOME PAGE: http://www.joaoaramos.com/

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