Equilibrium Selection through Incomplete Information in Coordination Games: An Experimental Study

We experiment on a coordination game with uncertainty about payoffs.This game is closely related to models used in macroeconomic and financial applications to solve equilibrium indeterminacy. Subjects receive noisy signals about the true payoffs. The unique equilibrium is reached by iterative deletion of strictly dominated strategies. Over time actual behavior converges to the equilibrium. The data suggest that subjects do not apply reasoning of iterated deletion of dominated strategies but rather adaptive behavior. Thus, the learning speed clearly varies for different signals. We also experiment on a game without uncertainty as a benchmark case. The game with uncertainty is inspired by the “global” games of Carlsson and Van Damme (1993).