(Re-) Inventing the Traffic Light: Designing Recommendation Devices for Play of Strategic Games

63 Pages Posted: 25 May 2023

See all articles by Mikhail Anufriev

Mikhail Anufriev

University of Technology Sydney (UTS)

John Duffy

University of California, Irvine

Valentyn Panchenko

UNSW Business School, Economics, University of New South Wales

Benjamin Young

University of Technology Sydney (UTS)

Date Written: April 21, 2023

Abstract

We present the results of a novel experiment investigating individuals' ability to offer incentive-compatible recommendations for strategic games. Subjects designed recommendation devices for five canonical 2x2 games played by Bayesian, expected-utility maximizing robots to achieve Pareto efficiency and fairness. Most subjects succeeded in achieving this objective in Matching Pennies and Battle of the Sexes, but only a minority found the desirable device in Prisoner's Dilemma and the two Chicken games. However, the vast majority of subjects designed an incentive-compatible recommendation device for the Chicken games. Subjects failed to recognize that strategic incentives meant the socially-efficient outcome could never be recommended in Prisoner's Dilemma. Our approach requires participants to use a holistic approach to equilibrium reasoning. Our findings suggest that equilibrium reasoning is most challenging for individuals when strategic incentives conflict with cooperative outcomes.

Keywords: Mechanism Design, Recommendations, Correlated Equilibrium, Nash Equilibrium, Experimental Economics

JEL Classification: C72, C91, D82, D91

Suggested Citation

Anufriev, Mikhail and Duffy, John and Panchenko, Valentyn and Young, Benjamin, (Re-) Inventing the Traffic Light: Designing Recommendation Devices for Play of Strategic Games (April 21, 2023). Available at SSRN: https://ssrn.com/abstract=4433731 or http://dx.doi.org/10.2139/ssrn.4433731

Mikhail Anufriev

University of Technology Sydney (UTS) ( email )

P. O. Box 123
Broadway, NSW 2007
Australia

John Duffy

University of California, Irvine ( email )

Department of Economics
3151 Social Science Plaza
Irvine, CA 92697
United States
949-824-8341 (Phone)

Valentyn Panchenko (Contact Author)

UNSW Business School, Economics, University of New South Wales ( email )

Sydney, NSW 2052
Australia

HOME PAGE: http://research.economics.unsw.edu.au/vpanchenko

Benjamin Young

University of Technology Sydney (UTS) ( email )

15 Broadway, Ultimo
PO Box 123
Sydney, NSW 2007
Australia

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