John B. Van Huyck

Strategic Uncertainty, Equilibrium Selection, and Coordination Failure in Average Opinion Games

Deductive equilibrium analysis often fails to provide a unique equilibrium solution in many situations of strategic interdependence. Consequently, a theory of equilibrium selection would be a useful complement to the theory of equilibrium points. A salient equilibrium selection principle would allow decision makers to implement a mutual best response outcome. This paper uses the experimental method to examine the salience of payoff-dominance, security, and historical precedents in related average opinion games. The systematic and, hence, predictable behavior observed in the experiments suggests that it should be possible to construct an accurate theory of equilibrium selection.

Optimization Incentives and Coordination Failure in Laboratory Stag Hunt Games

This paper reports an experiment comparing three stag hunt games that have the same best-response correspondence and the same expected payoff from the mixed equilibrium, but differ in the incentive to play a best response rather than an inferior response. In each game, risk dominance conflicts with payoff dominance and selects an inefficient pure strategy equilibrium. We find statistically and economically significant evidence that the differences in the incentive to optimize help explain observed behavior.

Credible assignments in coordination games

Abstract This paper uses the experimental method to examine an arbiters ability to determine the outcome of two-person coordination games. All of the arbiters assignments in the experiments were strict equilibrium points, but some assignments violated payoff-dominance or symmetry. An assignment that corresponds to the games outcome is a credible assignment. The experiments test the hypothesis that an assignment to a strict equilibrium is a credible assignment. Our subjects did not find the individual rationality and mutual consistency of an equilibrium assignment to be sufficient reason for implementing the assignment when doing so conflicts with payoff-dominance or symmetry.

Adaptive behavior and coordination failure

Abstract We use the experimental method to study peoples adaptive behavior in a generic game with multiple Pareto ranked equilibria. The experiment was designed to discover if behavior diverged at the separatrix predicted by the fictitious play dynamic. The equilibrium selected was sensitive to small differences in initial conditions as predicted. The experiment provides some striking examples of coordination failure growing from small historical accidents.

Strategic Similarity and Emergent Conventions: Evidence from Similar Stag Hunt Games

Abstract This paper reports evidence on the origin of convention in laboratory cohorts confronting similar but not identical strategic situations repeatedly. The experiment preserves the action space of the game, while randomly perturbing the payoffs and scrambling the action labels in an effort to blunt the salience of retrospective selection principles. Hence, the similarity between stage games is reduced to certain strategic details, like efficiency, security, and risk dominance. Nevertheless, we do observe conventions emerging in half of the laboratory cohorts. When a convention emerges subjectss behavior conforms to the selection principles of efficiency rather than security or risk dominance. Journal of Economic Literature Classification Numbers: C72, C78, C92, D83.

Selection Dynamics, Asymptotic Stability, and Adaptive Behavior

Selection dynamics are often used to distinguish stable and unstable equilibria. This is particularly useful when multiple equilibria prevent a priori comparative static analysis. This paper reports an experiment designed to compare the accuracy of the myopic best-response dynamic and an inertial selection dynamic. The inertial selection dynamic makes more accurate predictions about the observed mutual best-response outcomes.

On the Origin of Convention: Evidence from Coordination Games

We report the results of a coordination game experiment. The experiment carefully distinguishes between conventions based on labels and conventions based on populations. Our labels treatments investigate the abstraction assumptions that underlie the concept of a strategy, while our population treatments investigate the attraction of alternative mutually consistent ways to play under adaptive behaviour. We observe conventions emerging in communities with one population and labels and with two populations and no labels, but the most effective treatment is two labelled populations. We estimate logistic response learning models for individual subject behaviour. Of the models considered, a version of exponential fictitious play fits our data best.

On the origin of convention: evidence from symmetric bargaining games

We use a dynamical systems approach to model the origin of bargaining conventions and report the results of a symmetric bargaining game experiment. Our experiment also provides evidence on the psychological salience of symmetry and efficiency. The observed behavior in the experiment was systematic, replicable, and roughly consistent with the dynamical systems approach. For instance, we do observe unequal-division conventions emerging in communities of symmetrically endowed subjects.

Tacit Cooperation, Strategic Uncertainty, and Coordination Failure: Evidence from Repeated Dominance Solvable Games

Abstract This paper reports an experiment designed to discover how the prospect of future interaction influences peoples ability to tacitly cooperate in repeated dominance solvable games. The experiment varies two treatment variables: whether the constituent game is solvable by strict or iterated dominance and whether prospective interaction is finitely or randomly terminated. Specifically, we introduce a special repeated matching protocol consisting of an initial phase terminated randomly and a terminal phase of T periods. We call this protocol T-death. The T-death protocol allows us to observe a pairs behavior in both a sequence of infinite continuation games and a sequence of finite continuation games. Journal of Economic Literature Classification Numbers: C720, C920, 1120, 1400.

Seigniorage, inflation, and reputation

This paper derives a reputational equilibrum for inflation in a model in which the government obtains valuable seigniorage by issuing fiat money in echange for real resources. One insightful result is that , with contemporaneous perceptionof actual government behavior and immediate adjustment of real cash balences to new information , the Friedman elasticity solution for maximal seigniorage is the reputatoinal equilibrium. More generally , the analysis shows that the objective of maximal seigniorage produces an equilibrium inflation rate equal either to a generalization of the Friedman elasticity solution or to the rate at which the government discounts future seigniorage adjusted for the growth rate, whichever is larger. Thus, the model formalizes the conjecture that epizodes of inflation rates in excess of the Friedman solution are attributable to high discounts rates for future seigniorage. Adding aversion to high expected inflation to the model, this analysis also rationalizes the observation that inflation rates are usually less than Friedmans elasticity solution.