A Two-Stage Beer Production Game: Consider a production team engaged in the daily production of a special microbrewed

The Basic Issue: In economic situations involving multiple agents, the primary source of uncertainty is often the behavior of other agents. This behavioral uncertainty can lead to situations in which, starting from the same structural conditions, multiple outcomes are possible depending on the expectations of the agents. For example, an economy might experience two possible outcomes as follows: (1) a booming high-output situation in which all agents are optimistic (i.e., they believe other agents will work hard), so they choose to work hard themselves; and (2) a stagnant lowoutput situation in which all agents are pessimistic (i.e., they believe other agents will not work hard), so they choose not to work hard themselves. Notice that the agents’ expectations are “self-fulfilling” in each case: that is, optimistic expectations lead to a good situation, and pessimistic expectations leads to a bad situation. Consequently, after the fact, agents in both cases perceive no reason to revise their expectations. In case (2) the result is coordination failure – the economy comes to rest at an outcome that no individual agent has either the incentive or power to change, yet there exists another possible outcome for the economy in which everyone would be better off.