() and Robert Östling
Tore Ellingsen: Dept. of Economics, Stockholm School of Economics, Postal: Stockholm School of Economics, P.O. Box 6501, SE-113 83 Stockholm, Sweden
Robert Östling: Institute for International Economic Studies, Postal: Stockholm University, SE-106 91 Stockholm, Sweden
Abstract: We study costless pre-play communication of intentions among inexperienced players. Using the level-k model of strategic thinking to describe players' beliefs, we fully characterize the effects of pre-play communication in symmetric 2×2 games. One-way communication weakly increases coordination on Nash equilibrium outcomes, although average payoffs sometimes decrease. Two-way communication further improves payoffs in some games, but is detrimental in others. Moving beyond the class of symmetric 2×2 games, we find that communication facilitates coordination in common interest games with positive spillovers and strategic complementarities, but there are also games in which any type of communication hampers coordination.
30 pages, First version: November 27, 2007. Revised: October 13, 2009. Earlier revisions: June 19, 2008, June 19, 2008, April 17, 2009, October 13, 2009.
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