Efficiency Gains through Social Influence in a Minimum Effort Game

Abstract

In this paper we explore the role of social influence for the coordination of effort choice in a game with strategic complementarities. Players are repeatedly randomly partitioned in groups to play a minimum effort game and choose their effort based on their beliefs about the minimal effort among the other members of their group. Individual expectations about this minimal effort is influenced by own experience as well as by communication of beliefs within a social network. We show that increasing the importance of social influence in the expectation formation process has positive effects on the emerging (long run) effort level, thereby improving the efficiency of the outcome. Furthermore, a more centralized social network leads to higher average efficiency, but also to increased variance of outcomes. Finally, communication of actual minimum effort cannot replace the communication of beliefs as a device fostering the emergence of high long run effort.

Keywords: Minimum Effort Game, Expectation Formation, Social Influence, Belief Communication

JEL Classification: C63, C73, D83