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The Theory of Global Games on Test: Experimental Analysis of Coordination Games with Public and Private Information
Author(s) -
Heinemann Frank,
Nagel Rosemarie,
Ockenfels Peter
Publication year - 2004
Publication title -
econometrica
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 16.7
H-Index - 199
eISSN - 1468-0262
pISSN - 0012-9682
DOI - 10.1111/j.1468-0262.2004.00544.x
Subject(s) - test (biology) , global game , coordination game , private information retrieval , game theory , economics , mathematical economics , microeconomics , public information , political science , mathematics , public relations , statistics , paleontology , biology
The theory of global games has shown that coordination games with multiple equilibria may have a unique equilibrium if certain parameters of the payoff function are private information instead of common knowledge. We report the results of an experiment designed to test the predictions of this theory. Comparing sessions with common and private information, we observe only small differences in behavior. For common information, subjects coordinate on threshold strategies that deviate from the global game solution towards the payoff‐dominant equilibrium. For private information, thresholds are closer to the global game solution than for common information. Variations in the payoff function affect behavior as predicted by comparative statics of the global game solution. Predictability of coordination points is about the same for both information conditions.