Efficient Coordination in Weakest-Link Games

Existing experimental research on behavior in weakest-link games shows overwhelmingly the inability of people to coordinate on the efficient equilibrium, especially in larger groups. We hypothesize that people are able to coordinate on efficient outcomes, provided they have sufficient freedom to choose their interaction neighborhood. We conduct experiments with medium sized and large groups and show that neighborhood choice indeed leads to coordination on the fully efficient equilibrium, irrespective if group size. This leads to substantial welfare effects. Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice than without neighborhood choice. We identify exclusion as the simple but very effective mechanism underlying this result. In early rounds, high performers exclude low performers who in consequence 'learn' to become high performers.efficient coordination, weakest-link, minimum effort, neighborhood choice, experiment

Efficient Coordination in Weakest-Link Games

Existing experimental research on behavior in weakest-link games shows overwhelmingly theinability of people to coordinate on the efficient equilibrium, especially in larger groups. Wehypothesize that people will be able to coordinate on efficient outcomes, provided they havesufficient freedom to choose their interaction neighborhood. We conduct experiments with mediumsized and large groups and show that neighborhood choice indeed leads to coordination on the fullyefficient equilibrium, irrespective of group size. This leads to substantial welfare effects.Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice thanwithout neighborhood choice. We identify exclusion as the simple but very effective mechanismunderlying this result. In early rounds, high performers exclude low performers who in consequence‘learn’ to become high performers.microeconomics ;

Tournament Incentives Affect Perceived Stress and Hormonal Stress Responses

We conduct a laboratory experiment among male participants to investigate whether rewarding schemes that depend on work performance – in particular, tournament incentives – induce more stress than schemes that are independent of performance - fixed payment scheme. Stress is measured over the entire course of the experiment at both the hormonal and psychological level. Hormonal stress responses are captured by measuring salivary cortisol levels. Psychological stress responses are measured by self-reported feelings of stress and primary appraisals. We find that tournament incentives induce a stress response whereas a fixed payment does not induce stress. This stress response does not differ significantly across situations in which winners and losers of the tournament are publically announced and situations in which this information remains private. Biological and psychological stress measures are positively correlated, i.e. increased levels of cortisol are associated with stronger feelings of stress. Nevertheless, neither perceived psychological stress nor elevated cortisol levels in a previous tournament predict a subsequent choice between tournaments and fixed payment schemes, indicating that stress induced by incentives schemes is not a relevant criterion for sorting decisions in our experiment. Finally, we find that cortisol levels are severely elevated at the beginning of the experiment, suggesting that participants experience stress in anticipation of the experiment per se, potentially due to uncertainties associated with the unknown lab situation. We call this the novelty effect