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CORRELATED EQUILIBRIA, GOOD AND BAD: AN EXPERIMENTAL STUDY *
Author(s) -
Duffy John,
Feltovich Nick
Publication year - 2010
Publication title -
international economic review
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 2.658
H-Index - 86
eISSN - 1468-2354
pISSN - 0020-6598
DOI - 10.1111/j.1468-2354.2010.00598.x
Subject(s) - nash equilibrium , risk dominance , generalization , mathematical economics , economics , epsilon equilibrium , stochastic game , best response , correlated equilibrium , equilibrium selection , game theory , mathematics , repeated game , mathematical analysis
We report results from an experiment that explores the empirical validity of correlated equilibrium , an important generalization of Nash equilibrium. Specifically, we examine the conditions under which subjects playing the game of Chicken will condition their behavior on private third‐party recommendations drawn from publicly announced distributions. We find that when recommendations are given, behavior differs from both a mixed‐strategy Nash equilibrium and behavior without recommendations. In particular, subjects typically follow recommendations if and only if (1) those recommendations derive from a correlated equilibrium and (2) that correlated equilibrium is payoff‐enhancing relative to the available Nash equilibria.