Noisy Leadership: An Experimental Approach

37 Pages Posted: 15 May 2002

See all articles by Werner Guth

Werner Guth

Max Planck Institute of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Wieland Müller

University of Vienna, Department of Economics & VCEE; Tilburg University, Department of Economics & CentER

Yossi Spiegel

Tel Aviv University, Coller School of Management; Centre for Economic Policy Research (CEPR); ZEW – Leibniz Centre for European Economic Research

Date Written: March 12, 2002

Abstract

We examine the strategic behavior of leaders and followers in sequential duopoly experiments in which followers either perfectly observe the leaders' actions or else observe nothing. Our experiments show that consistent with the theory, leaders enjoy a greater first-mover advantage when followers observe their actions with higher probability. However, the results also show that (i) leaders do not fully exploit their first-mover advantage, (ii) when informed, followers tend to overreact slightly (i.e., choose quantities above their best-response to the leaders' quantities), and (iii) when uninformed, followers try to predict leaders' quantities and react optimally. This suggests that followers view the symmetric Cournot outcome as "fair" and whenever they observe leaders who are trying to exploit their first-mover advantage, they "punish" them by overreacting. Such punishments in turn induce leaders to behave more softly than the theory predicts.

JEL Classification: C72, C91

Suggested Citation

Güth, Werner and Müller, Wieland and Spiegel, Yossi, Noisy Leadership: An Experimental Approach (March 12, 2002). Available at SSRN: https://ssrn.com/abstract=304115 or http://dx.doi.org/10.2139/ssrn.304115

Werner Güth

Max Planck Institute of Economics ( email )

Kahlaische Strasse 10
D-07745 Jena, 07745
Germany

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Wieland Müller (Contact Author)

University of Vienna, Department of Economics & VCEE ( email )

Oskar-Morgenstern-Platz 1
Vienna, A-1090
Austria

HOME PAGE: http://https://homepage.univie.ac.at/wieland.mueller/

Tilburg University, Department of Economics & CentER ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

HOME PAGE: http://www.tilburguniversity.edu/webwijs/show/w.mueller-3.htm

Yossi Spiegel

Tel Aviv University, Coller School of Management ( email )

Ramat Aviv, Tel Aviv, 69978
Israel
972-3-640-9063 (Phone)
972-3-640-7739 (Fax)

HOME PAGE: http://www.tau.ac.il/~spiegel

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

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