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Julie Beugnot, Zeynep Gürgüç, Frederik Roose Øvlisen and Michael M. W. Roos
''Coordination failure caused by sunspots''
( 2012, Vol. 32 No.4 )
In a coordination game with Pareto-ranked equilibria, we study whether a sunspot can lead to either coordination on an inferior equilibrium (mis-coordination) or to out-of equilibrium behavior (dis-coordination). While much of the literature searches for mechanisms to attain coordination on the efficient equilibrium, we consider sunspots as a potential reason for coordination failure. We conduct an experiment with a three player 2x2x2 game in which coordination on the efficient equilibrium is easy and should normally occur. In the control session, we find almost perfect coordination on the payoff-dominant equilibrium, but in the sunspot treatment, dis-coordination is frequent. Sunspots lead to significant inefficiency, and we conclude that sunspots can indeed cause coordination failure.
Keywords: sunspots, coordination game, multiple Pareto-ranked equilibria, experiment
JEL: C9 - Design of Experiments: General
Manuscript Received : Jul 25 2012 Manuscript Accepted : Oct 13 2012

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