Bounded best-response and collective-optimality reasoning in coordination games

Marco Faillo, Alessandra Smerilli, Robert Sugden

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Abstract

We investigate experimentally the conditions under which bounded best-response and collective-optimality reasoning are used in coordination games. Using level-k and team reasoning theories as exemplars, we study games with three pure-strategy equilibria, two of which are mutually isomorphic. The third is always team-optimal, but whether it is predicted by level-k theory differs across games. We find that collective-optimality reasoning is facilitated if the collectively optimal equilibrium gives more equal payoffs than the others, and is inhibited if that equilibrium is Pareto-dominated by the others, considered separately. We suggest that coordination cannot be explained by a single theory.
Original languageEnglish
Pages (from-to)317–335
JournalJournal of Economic Behavior and Organization
Volume140
Early online date4 Jun 2017
DOIs
Publication statusPublished - Aug 2017

Keywords

  • team reasoning
  • level-k theory
  • coordination games

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