Tacit Coordination in a Decentralized Market Entry Game with Fixed Capacity

Tacit coordination is studied experimentally in a class of iterated market entry games with a relatively small number of potential entrants (n = 6), symmetric players, and fixed entry fees. These games are intended to simulate a situation where a newly emergent market opportunity may be fruitfully exploited by no more than a fixed and commonly known number of firms. Our results indicate a high degree of sensitivity to the game parameters that are manipulated in the study, namely, the market capacity, entry fee, and method of subject assignment to groups (fixed vs. random), as well as sophisticated adaptation to actual and hypothetical changes in wealth level. We find no support for convergence to equilibrium play on either the aggregate or individual level or for any trend across rounds of play to maximize total group payoff by lowering the frequency of entry. The coordination failure is attributed to certain features of the payoff function that induce strong competition in the attempt to penetrate the market.Tacit Coordination, Market Entry Game, Experiment

What Price Fairness? A Bargaining Study

Our study concerns bargaining behavior in situations where one party is in a stronger position than the other. We investigate both the tradeoff the favored party makes between pursuing his strategic advantage and giving weight to other players' concern for fairness, and the tradeoff the disadvantaged player makes between pursuing a fair outcome from a disadvantaged position and the cost of that pursuit. In particular, we hypothesize that the degree to which strategically strong players attempt to exploit their strategic advantage depends on their potential costs for doing so. Similarly, the degree to which weak players persist in seeking "fairness" is also a function of how much it (potentially) costs them to do so. Students negotiated in pairs over the division of $HK50 using a finite horizon, fixed-cost (per rejection) alternating offer rule. Each pair consisted of a high-cost and a low-cost bargainer. In accordance with the hypothesis, the willingness of the high-cost bargainers to demand fairness and to persist in their demands was a function of how much it cost them to do so, and the degree to which the low-cost bargainers attempted to exploit their strategic advantage depended on their own cost of rejection. We conclude that "fairness" has a price such that the higher its price, the lower the "demand" for it. This suggests that demands for fairness are subject to cost- benefit evaluation, are in this sense deliberate, and are well thought out.Fairness, bargaining, fixed-cost

Bargaining and Search: An Experimental Study

We study experimentally two versions of a model in which a buyer and a seller bargain over the price of a good; however, the buyer can choose to leave the negotiation table to search for other alternatives. Under one version, if the buyer chooses to search for a better price, the opportunity to purchase the good at the stated price is gone. Under the second version, the seller guarantees the same price if the buyer chooses to return immediately after a search (presumably because a better price could not be found). In both cases, the buyer has a fairly good idea about what to expect from the search, but because the search is costly, he has to weigh the potential benefits of the search against its cost. It turns out (theoretically) that adding search to a simple bargaining mechanism eliminates some unsatisfactory features of bargaining theory. Our experiment reveals that the model can account for some (but not all) of the behavioral regularities. In line with recent developments in behavioral decision theory and game theory, which assume bounded rationality and preferences over the relative division of a surplus, we find that subjects follow simple rules of thumb and distributional norms in choosing strategies, which are reflected in the behavioral consistencies observed in this study.Bargaining, search, outside option, ultimatum game

Choice of Prizes Allocated by Multiple Lotteries with Endogenously Determined Probabilities

We study a class of interactive decision making situations in which each agent must choose to participate in one of several lotteries with commonly known prizes. In contrast to the widely studied paradigm of choice between gambles in individual decision making under risk, the probability of winning a prize in each of the lotteries in our study is endogenously determined. In particular, for each lottery, it is known to decrease in the number of agents choosing to play that lottery. We construct the Nash equilibrium solution to this game and then test it experimentally in the special case where each lottery yields only a single prize. The results show a remarkable degree of tacit coordination that supports the equilibrium solution under the assumption of common risk-aversion. However, this coordination is not achieved via individual level randomization. Rather, the entry decisions of most of the subjects can be characterized by local adjustments to the outcome of the previous iteration of the same game along the lines suggested by anticipatory learning models.Coordination, Endogenously Determined Probabilities

Invariance failure under subgame perfectness in sequential bargaining

A basic property of any normative theory of decision making --- individual or group --- is its invariance under the theory's own equivalence specification. Growing evidence from experimental studies in several areas of game playing indicates that the game-theoretic notion of strategic equivalence is systematically violated in the behavioral arena. The present study expands the design of previous studies of bilateral bargaining by including a third party and a new trading rule - -- modifications which induce behavioral patterns that reject equivalence under subgame perfectionbargaining, subgame perfect, invariance

A Comparison of the Eigenvalue Method and The Geometric Mean Procedure for Ratio Scaling

The development of analytical procedures and experimental techniques for constructing ratio measurement scales has long been a major topic and important challenge in psychophysics and other areas of psychology. The interest in ratio scales is obviously related to their high level of invariance (unique up to a similarity transformation) and the associated statistical operations they allow one to perform (Stevens, 1946). To obtain ratio scales, Stevens and his colleagues " (Stevens, Mack, & Stevens, 1960) developed the "cross modality matching" paradigm, which was originally applied to variables with a corresponding physical continuum and later generalized to social and other psychological stimuli (e.g., Lodge, 'a 1981). Although Stevens' techniques have been widely used in numerous areas (e.g., Stevens, 1972, 1975; Lodge, 1981), their precise characterization is still a topic of debate among measurement specialists (e.g., Shepard, 1981)

Investment Decisions and Coordination Problems in a Market with Network Externalities: An Experimental Study

International audienceWe study decision-making and the associated coordination problems in an experimental setting with network externalities. Subjects decide simultaneously in every round how much to invest out of a fixed endowment; the gain from an investment increases with total investment, so that an investment is profitable iff total investment exceeds a critical mass. The game has multiple, Pareto-ranked equilibria; we find that whether first-round total investment reaches critical mass predicts convergence towards the Pareto optimal full-investment equilibrium. Moreover, first-round investments and equilibrium convergence vary with critical mass and group size in a complex way that is explicable by subtle effects of strategic uncertainty on decision making