Measuring Strategic Uncertainty in Coordination Games

48 Pages Posted: 10 Jan 2005

See all articles by Frank Heinemann

Frank Heinemann

Berlin Institute of Technology; CESifo (Center for Economic Studies and Ifo Institute)

Rosemarie Nagel

Universitat Pompeu Fabra - Department of Economics

Peter Ockenfels

Goethe University Frankfurt - Institute of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: December 2004

Abstract

This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment, we measure subjects' certainty equivalents for three coordination games and one lottery. Behavior in coordination games is related to risk aversion, experience seeking, and age. From the distribution of certainty equivalents, we estimate probabilities for successful coordination in a wide range of games. For many games, success of coordination is predictable with a reasonable error rate. The best response to observed behavior is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Estimating probabilistic decision models, we show that the quality of predictions can be improved when individual characteristics are taken into account. Subjects' behavior is consistent with probabilistic beliefs about the aggregate outcome, but inconsistent with probabilistic beliefs about individual behavior.

JEL Classification: C72, C91, D81, D84

Suggested Citation

Heinemann, Frank and Nagel, Rosemarie and Ockenfels, Peter, Measuring Strategic Uncertainty in Coordination Games (December 2004). CESifo Working Paper Series No. 1364. Available at SSRN: https://ssrn.com/abstract=645862

Frank Heinemann (Contact Author)

Berlin Institute of Technology ( email )

Strasse des 17. Juni 135
H 52
Berlin, 10623
Germany

HOME PAGE: http://www.macroeconomics.tu-berlin.de/Heinemann.html

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Rosemarie Nagel

Universitat Pompeu Fabra - Department of Economics ( email )

Ramon Trias Fargas 25-27
08005 Barcelona
Spain
+34 93 542 3729 (Phone)
+34 93 542 1746 (Fax)

Peter Ockenfels

Goethe University Frankfurt - Institute of Economics ( email )

In house Post Box 81
Frankfurt am Main 60054
Germany

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