Talking Ourselves to Efficiency: Coordination in Inter‐Generational Minimum Effort Games with Private, Almost Common and Common Knowledge of Advice

Abstract

We use experiments to investigate the use of advice as a coordinating device in the ‘Minimum Effort Game’ which is a coordination game with weak strategic complementarities and Pareto‐ranked equilibria. The game is played by non‐overlapping generations of players who, after they are done, pass on advice to their successors who take their place in the game. We conjectured that this inter‐generational design might enable subjects to converge to the payoff‐dominant outcome. We find that coordination is most likely to result when the advice is made public and also distributed in a manner that makes it common knowledge.

When and why? A critical survey on coordination failure in the laboratory

“…The outcome was essentially the same even after payoff efficient precedents emerged in a treatment (B) that was inserted between treatments A and A' for four out of six sessions. Several other experimenters -in baseline treatments for various modifications reported in those papers --replicated this unraveling result with the same payoff matrix, and with subject numbers varying from 6 -14 (e.g., Cachon and Camerer, 1996;Bornstein, Gneezy and Nagel, 2002;Blume and Ortmann, 2005;Chaudhuri, Schotter and Sopher, 2005). Other experimenters -also in baseline treatments for various modifications reported in those papers --chose structurally similar payoff matrices (e.g., linear deviation costs, no negative payoffs) with slightly more or less action choices (e.g., Berninghaus and Ehrhart, 1998;Knez and Camerer, 1994;Weber, Camerer, Rottenstreich and Knez, 2001;Brandts and Cooper, 2004, 2005a and also replicated this result.…”

“…Both VHBB (1993) and Cachon and Camerer (1996) used costly (but tacit) information -VHBB auctioning off the right to play and Cachon and Camerer asking subjects to pay a fixed price -to overcome coordination failure completely. Costly communication has also been used in the intergenerational minimum effort game experiments by Chaudhuri, Schotter and Sopher (2005). Their results suggest that the quality of advice given is positively related to the probability of coordination success.…”

The psychology of coordination and common knowledge.

“…Yet despite the fact that common knowledge is fundamentally a psychological phenomenon, little is known about the psychology of common knowledge (some notable exceptions include Chaudhuri, Schotter, & Sopher, 2009;Lee & Pinker, 2010). We briefly review two literatures (experimental economics and theory of mind) that are indirectly relevant to the phenomenon before outlining our own research questions.…”

Communication, leadership and coordination failure

“…4 The results are sensitive to the cost and clarity of messages, as Manzini et al (2009) and Kriss et al (2016) find. 5 Other mechanisms that have been shown to be able to prevent coordination failure in minimum effort games to some extent include advice from previous cohorts of players (Chaudhuri et al 2009), post-play disapproval messages (Dugar 2010), and inducing social identity (Chen and Chen 2011). Although the above studies found that coordination failure can be prevented in the minimum effort game by introducing various extensions, how robust is this result? Does it depend on the particular parametrization of the minimum effort game?…”