Friday, October 2, 2009
Posted by D. Daniel Sokol
Timothy N. Cason (Purdue - Econ), Roman M. Sheremeta (Argyros School of Business and Economics,Chapman University), and Jingjing Zhang (McMaster - Econ) explain Reducing Efficiency through Communication in Competitive Coordination Games.
ABSTRACT: Costless pre-play communication has been found to effectively facilitate coordination and enhance efficiency by increasing individual payoffs in games with Pareto-ranked equilibria. We report an experiment in which two groups compete in a weakest-link contest by expending costly efforts. Allowing group members to communicate before choosing efforts leads to more aggressive competition and greater coordination, but also results in substantially lower payoffs than a control treatment without communication. Our experiment thus provides evidence that communication can reduce efficiency in competitive coordination games. This contrasts sharply with experimental findings from public goods and other coordination games, where communication enhances efficiency and often leads to socially optimal outcomes.