(Re-) Inventing the Traffic Light: Designing Recommendation Devices for Play of Strategic Games
63 Pages Posted: 25 May 2023
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: Suggested Citation