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The University of Southampton
EconomicsPart of Economic, Social and Political Science

1401 An Experimental Study Of Uncertainty In Coordination Games (C.A. Ioannou & M. Makris)

Author Christos A. Ioannou (University of Southampton) Miltiadis Makris (University of Southampton)

Paper number 1401

Global games and Poisson games have been proposed to address equilibrium indeterminacy in Coordination games. The former assume that agents face idiosyncratic uncertainty about economic fundamentals, whereas the latter, following Myerson (2000), model the number of actual players as a Poisson random variable to capture population uncertainty in large games.

Given that their predictions differ, it is imperative to understand which type of uncertainty drives behavior, if any. Recent experimental literature finds that inexperienced (in the sense of limited game-play) subjects' behavior is similar in Global and Common Knowledge Coordination games, thus casting doubts on whether idiosyncratic uncertainty about economic fundamentals is an important determinant of such behavior. We design an experiment to study the behavior of inexperienced subjects in Global, Poisson and Common Knowledge Coordination games. Our findings corroborate the above experimental literature. More importantly, they also suggest that uncertainty about the number of actual players in large games does influence inexperienced subjects' behavior.

In addition, inexperienced subjects' behavior under such uncertainty is, in fact, consistent with the theoretical prediction of Poisson Coordination games.

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