Compromise and Coordination: An Experimental Study

Abstract

This paper experimentally studies the role of a compromise option in a repeated battle-of-the-sexes game. We find that in a random-matching environment, compromise serves as an effective focal point and facilitates coordination, but fails to improve efficiency. However, in a fixed-partnership environment, compromise deters subjects from learning to play alternation, a more efficient but also more complex strategy. As a result, compromise hurts efficiency in the long-run by allowing subjects to coordinate on the less efficient outcome. We explore various behavioral mechanisms and suggest that people may fail to use an equal and efficient strategy if such a strategy is complex