Working Papers,
Lund University, Department of Economics

Abstract: We experimentally test theoretical predictions on equilibrium selection in a two-player coordination (investment) game. Through a minimal visual variation, our design prompts participants to play strategies whereby investing probability is either continuous or discontinuous in the payoff-relevant state. When participants use continuous strategies, average behavior is consistent with play in the risk-dominant equilibrium, the unique theoretical prediction. When they use discontinuous strategies, average behavior is closer to the payoff-dominant equilibrium strategy. In this case, the theory predicts multiple equilibria, for which we find no support. Additionally, we extend the theory to heterogeneous populations: the set of equilibria monotonically decreases in the proportion of players who use continuous strategies.

Keywords: Coordination; Global games; Information acquisition; Continuous stochastic choice; Laboratory experiment; Perception

JEL-codes: C72; C92; D83

Language: English

44 pages, First version: August 31, 2020. Revised: June 15, 2022.

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