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Free Neighborhood Choice Boosts Socially Optimal Outcomes in Stag-Hunt Coordination Problem

Author

Listed:
  • Arno Riedl
  • Ingrid M. T. Rohde
  • Martin Strobel
Abstract
Situations where independent agents need to align their activities to achieve individually and socially beneficial outcomes are abundant, reaching from everyday situations like fixing a time for a meeting to global problems like climate change agreements. Often such situations can be described as stag-hunt games, where coordinating on the socially efficient outcome is individually optimal but also entails a risk of losing out. Previous work has shown that in fixed interaction neighborhoods agents’ behavior mostly converges to collectively inefficient outcome. However, in the field, interaction neighborhoods often can be self-determined. Theoretical work investigating such circumstances is ambiguous in whether the efficient or inefficient outcome will prevail. We performed an experiment with human subjects exploring how free neighborhood choice affects coordination. In a fixed interaction treatment, a vast majority of subjects quickly coordinates on the inefficient outcome. In a treatment with neighborhood choice, the outcome is dramatically different: behavior quickly converges to the socially desirable outcome leading to welfare gains 2.5 times higher than in the environment without neighborhood choice. Participants playing efficiently exclude those playing inefficiently who in response change their behavior and are subsequently included again. Importantly, this mechanism is effective despite that only few exclusions actually occur.

Suggested Citation

  • Arno Riedl & Ingrid M. T. Rohde & Martin Strobel, 2021. "Free Neighborhood Choice Boosts Socially Optimal Outcomes in Stag-Hunt Coordination Problem," CESifo Working Paper Series 9012, CESifo.
    • Handle: RePEc:ces:ceswps:_9012
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    File URL: https://www.cesifo.org/DocDL/cesifo1_wp9012.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    stag-hunt; neighborhood choice; coordination; social welfare; exclusion;
    All these keywords.

    JEL classification:

    • C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games
    • C90 - Mathematical and Quantitative Methods - - Design of Experiments - - - General
    • D03 - Microeconomics - - General - - - Behavioral Microeconomics: Underlying Principles

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