Costly Preplay Communication and Coordination in Stag-Hunt Games

Buyukboyaci, Muruvvet and Kucuksenel, Serkan (2016): Costly Preplay Communication and Coordination in Stag-Hunt Games.

Abstract

In this paper, we experimentally investigate the impact of costly indirect and direct messages on coordination levels in a stag-hunt game. We also compare the coordination rates with costly pre-play communication to the rates with costless pre-play communication. Three main insights emerge from our experiments. First, we find a significant decrease in message usage with message cost in both treatments and a higher decrease in the indirect-message treatment. Second, we find that although there is no significant effect of costless or costly indirect messages on the frequency of risky actions, both costless and costly direct messages significantly increase the frequency of risky actions. Third, while we find a significant increase in the coordination rate on the payoff-dominant equilibrium from costless indirect message treatment to costly indirect message treatment, this rate significantly decreases from costless direct message to costly direct message treatment. Our findings show that depending on the structure of messages, message cost may increase or decrease the coordination rates on the payoff-dominant equilibrium.

• Item Type: MPRA Paper
• Language: English
• Keywords: coordination, cheap talk, pre-play communication, risk information, costly messages
• Subjects: C - Mathematical and Quantitative Methods > C7 - Game Theory and Bargaining Theory > C72 - Noncooperative Games; C - Mathematical and Quantitative Methods > C9 - Design of Experiments > C91 - Laboratory, Individual Behavior

References

Balkenborg, D. and Nagel, R. (2008). “An experiment on forward versus backward induction: How fairness and levels of reasoning matter.” Working paper.

Ben-Porath, Y, and Dekel, E. (1992). “Signalling Future Actions and the Potential for SelfSacrifice,” Journal of Economic Theory, 57(1), 36-51.

Blume, A., Kriss, P., and Weber, R. (2014). “Pre-Play Communication with Forgone Costly Messages: Experimental Evidence on Forward Induction.” University of Zurich working paper series, Department of Economics No. 34.

Brandts, J., and Holt, C.A. (1995). “Limitations of Dominance and Forward Induction: Experimental Evidence.” Economics Letters 49(4): 391–395.

Brandts, J., Cabrales, A., and Charness, G. (2007). “Forward Induction and Entry Deterrence: An Experiment.” Economic Theory 33(1): 183–209.

Buyukboyaci, M. (2014). “Risk Attitudes and the Stag-Hunt Game”, Economics Letters, 124(3), 323-325.

Buyukboyaci, M. and Kucuksenel, S. (2016). “Coordination and Cheap Talk: Indirect versus Direct Messages”, Working Paper, https://mpra.ub.unimuenchen.de/68964/1/MPRApaper68964.pdf.

Cachon, G. P., and Camerer, C. F. (1996). “Loss-Avoidance and Forward Induction in Experimental Coordination Games.” Quarterly Journal of Economics 111(1): 165–194.

Cooper, R., D. DeJong, R. Forsythe, and Ross T. (1989). “Communication in the battle of the sexes game; some experimental results.” RAND Journal of Economics 20: 568 587.

Cooper, R., D. DeJong, R. Forsythe, and Ross, T. (1992). “Communication in Coordination Games”. Quarterly Journal of Economics, 107, 739-771.

Cooper, R., D. DeJong, R. Forsythe, and Ross, T. (1993). “Forward Induction in the Battleof-the-Sexes Games”. American Economic Review, 83 (5), 1303-1316.

Crawford, V. P. (1997). “Theory and Experiment in the Analysis of Strategic Interaction,” in Advances in Economics and Econometrics: Theory and Applications, Volume 1. D. M. Kreps and K. F. Wallis, eds. Cambridge: Cambridge University Press, 206-242.

Fehr, D. (2011). “The persistence of ‘bad’ precedents and the need for communication: A coordination experiment.” Sonderforschungsbereich (SFB) 649 Discussion Paper 2011-039.

Fischbacher, U. (2007). “z-tree: Zurich toolbox for ready-made economic experiments.” Experimental Economics, 10, 171-178.

Holt, C., and Laury, S. (2002). “Risk Aversion and Incentive Effects.” American Economic Review, 92, 1644-1655.

Huck, S., and Muller, W. (2005). Burning money and (pseudo) first-mover advantages: an experimental study on forward induction. Games and Economic Behavior, 51(1),109–127.

Shahriar, Q. (2014). “An experimental test of the robustness and the power of forward induction.” Managerial and Decision Economics, 35(4):264-277.

Van Huyck, J. B., Battalio, R.C., and Beil, R.O. (1993). “Asset markets as an Equilibrium selection mechanism: coordination failure, game form auctions, and tacit communication.” Games and Economic Behavior, 5(3), 485-504.