Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162510
Authors: 
Fehr, Dietmar
Heinemann, Frank
Llorente-Saguer, Aniol
Year of Publication: 
2017
Series/Report no.: 
Discussion Paper 11
Abstract: 
This paper presents an experiment on a coordination game with extrinsic random signals, in which we systematically vary the stochastic process generating these signals and measure how signals affect behavior. We find that sunspot equilibria emerge naturally if there are salient public signals. However, highly correlated private signals can also lead to sunspot-driven behavior, even when this is not an equilibrium. Private signals reduce the power of public signals as sunspot variables. The higher the correlation of extrinsic signals and the more easily they can be aggregated, the more powerful these signals are in distracting actions from the action that minimizes strategic uncertainty.
Subjects: 
coordination games
strategic uncertainty
sunspot equilibria
forward guidance
expectations
JEL: 
C92
D82
D83
E39
E58
Document Type: 
Working Paper

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