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Potential Maximization and Coalition Government Formation

FEEM Working Paper No. 82.04

International Game Theory Review, Vol. 7, No. 4, pp. 407-429, 2005

23 Pages Posted: 6 Jul 2004 Last revised: 25 Jul 2008

Rod Garratt

University of California, Santa Barbara - Department of Economics

Cheng-Zhong Qin

University of California, Santa Barbara - Department of Economics

James E. Parco

Colorado College

Amnon Rapoport

University of Arizona - Eller College of Management

Abstract

A model of coalition government formation is presented in which inefficient, non-minimal winning coalitions may form in Nash equilibrium. Predictions for five games are presented and tested experimentally. The experimental data support potential maximization as a refinement of Nash equilibrium. In particular, the data support the prediction that non-minimal winning coalitions occur when the distance between policy positions of the parties is small relative to the value of forming the government. These conditions hold in games 1, 3, 4 and 5, where subjects played their unique potential-maximizing strategies 91, 52, 82 and 84 percent of the time, respectively. In the remaining game (Game 2) experimental data support the prediction of a minimal winning coalition. Players A and B played their unique potential-maximizing strategies 84 and 86 percent of the time, respectively, and the predicted minimal-winning government formed 92 percent of the time (all strategy choices for player C conform with potential maximization in Game 2). In Games 1, 2, 4 and 5 over 98 percent of the observed Nash equilibrium outcomes were those predicted by potential maximization. Other solution concepts including iterated elimination of dominated strategies and strong/coalition proof Nash equilibrium are also tested.

Keywords: Coalition formation, Potential maximization, Nash equilibrium refinements

JEL Classification: C72, C78, D72

Suggested Citation

Garratt, Rod and Qin, Cheng-Zhong and Parco, James E. and Rapoport, Amnon, Potential Maximization and Coalition Government Formation. FEEM Working Paper No. 82.04; International Game Theory Review, Vol. 7, No. 4, pp. 407-429, 2005. Available at SSRN: https://ssrn.com/abstract=555958 or http://dx.doi.org/10.2139/ssrn.555958

Rod Garratt (Contact Author)

University of California, Santa Barbara - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

Cheng-Zhong Qin

University of California, Santa Barbara - Department of Economics ( email )

2127 North Hall
Santa Barbara, CA 93106
United States

Jim Parco

Colorado College ( email )

Department of Economics and Business
14 E. Cache la Poudre St.
Colorado Springs, CO 80903
United States
719-389-6416 (Phone)
719-389-6927 (Fax)

HOME PAGE: http://www.coloradocollege.edu/dept/EC/parco.asp

Amnon Rapoport

University of Arizona - Eller College of Management ( email )

McClelland Hall
P.O. Box 210108
Tucson, AZ 85721-0108
United States
520-621-9325 (Phone)
520-621-4171 (Fax)

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