The effects of costless pre-play communication: Experimental evidence from games with Pareto-ranked equilibria

Abstract

Cheap talk is shown to facilitate coordination on the unique efficient equilibrium in experimental order-statistic games. This result is roughly consistent with theoretical predictions according to which cheap talk promotes efficient Nash play. The evidence concerning the mechanisms that theory appeals to is mixed: Frequent agreement of messages and actions is consistent with messages being viewed as self-committing. Risk in the underlying game and the absence of self-signaling messages may explain why message profiles are not unanimous. Time-varying message profiles can be interpreted as evidence for players trying to negotiate equilibria and/or trying to rely on secret handshakes.

Communication, leadership and coordination failure

“…Unlike most of the literature (e.g., Blume and Ortmann 2007;Cartwright et al 2013;Sahin et al 2015, in different environments), we found that in this challenging setting the mechanisms failed to overcome coordination failure and had only limited effectiveness in preventing it. The mechanisms had some effect in the short run as some players attempted to choose a higher effort but in the long run most players fell back to the lowest possible effort.…”

“…3 Coordination failure in a minimum effort game could be prevented if the game is modified from the beginning, possibly avoiding the decline of effort choices to a low level. For example, Blume and Ortmann (2007) find that pre-play communication significantly increases efficiency relative to the baseline treatment with no communication. 4 Cartwright et al (2013) let one of the players "lead-by-example" by choosing effort before the other players.…”

When and why? A critical survey on coordination failure in the laboratory

“…The outcome was essentially the same even after payoff efficient precedents emerged in a treatment (B) that was inserted between treatments A and A' for four out of six sessions. Several other experimenters -in baseline treatments for various modifications reported in those papers --replicated this unraveling result with the same payoff matrix, and with subject numbers varying from 6 -14 (e.g., Cachon and Camerer, 1996;Bornstein, Gneezy and Nagel, 2002;Blume and Ortmann, 2005;Chaudhuri, Schotter and Sopher, 2005). Other experimenters -also in baseline treatments for various modifications reported in those papers --chose structurally similar payoff matrices (e.g., linear deviation costs, no negative payoffs) with slightly more or less action choices (e.g., Berninghaus and Ehrhart, 1998;Knez and Camerer, 1994;Weber, Camerer, Rottenstreich and Knez, 2001;Brandts and Cooper, 2004, 2005a and also replicated this result.…”

“…Furthermore, the initial median constituted a strong precedent from which subjects had trouble extracting themselves. Blume and Ortmann (2005), in their baseline treatments, replicated this result by using the same payoff matrix, the same number of subjects, and the same feedback conditions. So did Cachon and Camerer (1996).…”

“…Turning from costly to costless messages, Blume and Ortmann (2005), using the key earnings tables from VHBB (1990VHBB ( , 1991 to facilitate comparison, test the effect of cheap talk both in the Minimum and Median game. They find that costless messages with minimal information content, when added to games with Pareto-ranked equilibria, can facilitate both quick convergence to, and participants' initial coordination on, the Paretodominant equilibrium.…”