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Title:The Power of Sunspots: An Experimental Analysis PDF Logo
Authors:Heinemann, Frank
Llorente-Saguer, Aniol
Fehr, Dietmar
Issue Date:2011
Series/Report no.:Beiträge zur Jahrestagung des Vereins für Socialpolitik 2011: Die Ordnung der Weltwirtschaft: Lektionen aus der Krise - Session: Information Economics B14-V3
Abstract:We present an experiment in which extrinsic signals may generate sunspot equilibria. The game has a unique symmetric non-sunspot equilibrium, which is also risk dominant. Other equilibria can be ordered according to risk dominance. By comparing treatments with different information structure, we measure the force of extrinsic signals. Results indicate that Sunspot equilibria emerge naturally, if there are salient (but extrinsic) public signals. However, salient private signals of high precision may also cause sunspot-like behavior even though this is no equilibrium. The higher the precision of signals and the easier they can be aggregated, the more powerful they are in dragging behavior away from the risk dominant to risk dominated strategies.
Subjects:coordination games
strategic uncertainty
sunspot equilibria
irrelevant information
JEL:C72
C92
D84
Document Type:Conference Paper
Appears in Collections:Jahrestagung des Vereins für Socialpolitik 2011: Die Ordnung der Weltwirtschaft - Lektionen aus der Krise

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