Seminars

Abstract: Coordination often occurs in a dynamic fashion. Consistent with equilibrium analysis and the standard iterated weak dominance algorithm, experimental evidence shows that the visibility of actions matters for coordination — players act early only when their actions are visible and are likely to be followed, as are their followers’ actions. However, a significant fraction of players failed to coordinate in the dynamic game with sufficiently many periods and full visibility, even though subgame perfect equilibrium and iterated weak dominance uniquely predict successful coordination. Experimental results show that this failure of coordination cannot be explained by limited reasoning. We develop a theory of asymmetric orders of elimination of weakly dominated strategies, which can explain why all players may decide to "wait and see," ultimately leading to coordination failure. By reducing the visibility of each other’s actions in a hierarchical way, the experimental evidence and our theory align to restore full coordination.