Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/54931
Authors: 
Riedl, Arno
Rohde, Ingrid M. T.
Strobel, Martin
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Behavioural Economics 3685
Abstract: 
Existing experimental research on behavior in weakest-link games shows overwhelmingly the inability of people to coordinate on the efficient equilibrium, especially in larger groups. We hypothesize that people will be able to coordinate on efficient outcomes, provided they have sufficient freedom to choose their interaction neighborhood. We conduct experiments with medium sized and large groups and show that neighborhood choice indeed leads to coordination on the fully efficient equilibrium, irrespective of group size. This leads to substantial welfare effects. Achieved welfare is between 40 and 60 percent higher in games with neighborhood choice than without neighborhood choice. We identify exclusion as the simple but very effective mechanism underlying this result. In early rounds, high performers exclude low performers who in consequence learn to become high performers.
Subjects: 
efficient coordination
weakest-link
minimum effort
neighborhood choice
experiment
JEL: 
C72
C92
D02
D03
D85
Document Type: 
Working Paper

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