Journal Article

Measuring Strategic Uncertainty in Coordination Games

Frank Heinemann, Rosemarie Nagel and Peter Ockenfels

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 76, issue 1, pages 181-221
Published in print January 2009 | ISSN: 0034-6527
Published online January 2009 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2008.00512.x
Measuring Strategic Uncertainty in Coordination Games

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  • Game Theory and Bargaining Theory
  • Information, Knowledge, and Uncertainy

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This paper proposes a method to measure strategic uncertainty by eliciting certainty equivalents analogous to measuring risk attitudes in lotteries. We apply this method by conducting experiments on a class of one-shot coordination games with strategic complementarities and choices between simple lotteries and sure payoff alternatives, both framed in a similar way. Despite the multiplicity of equilibria in the coordination games, aggregate behaviour is fairly predictable. The pure or mixed Nash equilibria cannot describe subjects' behaviour. We present two global games with private information about monetary payoffs and about risk aversion. While previous literature treats the parameters of a global game as given, we estimate them and show that both models describe observed behaviour well. The global-game selection for vanishing noise of private signals offers a good recommendation for actual players, given the observed distribution of actions. We also deduce subjective beliefs and compare them with objective probabilities.

Keywords: C72; D81; D82; D83

Journal Article.  17674 words.  Illustrated.

Subjects: Game Theory and Bargaining Theory ; Information, Knowledge, and Uncertainy

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