Nash versus coarse correlation

Konstantinos Georgalos, Indrajit Ray, Sonali SenGupta
2020 Experimental Economics  
We run a laboratory experiment to test the concept of coarse correlated equilibrium (Moulin and Vial in Int J Game Theory 7: 1978), with a two-person game with unique pure Nash equilibrium which is also the solution of iterative elimination of strictly dominated strategies. The subjects are asked to commit to a device that randomly picks one of three symmetric outcomes (including the Nash point) with higher ex-ante expected payoff than the Nash equilibrium payoff. We find that the subjects do
more » ... t accept this lottery (which is a coarse correlated equilibrium); instead, they choose to play the game and coordinate on the Nash equilibrium. However, given an individual choice between a lottery with equal probabilities of the same outcomes and the sure payoff as in the Nash point, the lottery is chosen by the subjects. This result is robust against a few variations. We explain our result as selecting risk-dominance over payoff dominance in equilibrium. constructive suggestions on a previously-circulated version. We are enormously grateful to two anonymous referees and the editors of this journal, Lata Gangadharan and Roberto Weber, for their constructive suggestions in successive rounds that helped us to prepare this final version. We also would like to thank the Department of Economics at the Lancaster University Management School for the funding and the Lancaster Experimental Economics Lab (LExEL), Lancaster University, for the use of their experimental laboratory, to run this experiment.
doi:10.1007/s10683-020-09647-x fatcat:gc5tx5e66faczphghnj3ltkpqu