Cursed beliefs with common-value public goods

Cox, Caleb (2014): Cursed beliefs with common-value public goods.

Abstract

I show how improper conditioning of beliefs can lead to under-contribution in public goods environments with interdependent values. I consider a simple model of a binary, excludable public good. In equilibrium, provision of the public good is good news about its value. Naive players who condition expectations only on their private information contribute too little, despite the absence of free-riding incentives. In a laboratory experiment, subjects indeed under-contribute relative to equilibrium. Using modified games with different belief conditioning effects, I verify that under-contribution is due to improper belief conditioning. I find little evidence of learning over multiple rounds of play.

• Item Type: MPRA Paper
• Language: English
• Keywords: Public goods; experiments; cursed equilibrium; game theory
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C92 - Laboratory, Group Behavior; D - Microeconomics > D7 - Analysis of Collective Decision-Making > D71 - Social Choice ; Clubs ; Committees ; Associations; H - Public Economics > H4 - Publicly Provided Goods > H41 - Public Goods

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