A Road to Efficiency Through Communication and Commitment
Abstract:
We examine the efficiency gains of introducing a pre-play phase—allowing agents to communicate their intentions and commit to them—in a game with Pareto ranked equilibria. We focus on a game in which a Pareto inferior equilibrium is usually chosen. We first derive the theoretical conditions under which the efficient equilibrium is unique in the extended game and then we test our theory in the lab. The introduction of the pre-play revision phase increases the coordination on the Pareto dominant equilibrium, restoring over 50% of the efficiency lost in the standard setting. The results shed new light on cheap talk and reveal that a combination of communication and commitment leads to significantly higher welfare.

Please sign up for meetings using the below:
docs.google.com/spreadsheets/d/1eYzLT2DsbTivOvrVx3OGaE4alXvBO_ALCow3yV_fW8o/edit#gid=0
Date: 18 October 2018, 13:00 (Thursday, 2nd week, Michaelmas 2018)
Venue: Manor Road Building, Manor Road OX1 3UQ
Venue Details: Seminar Room C
Speaker: João Ramos (University of Southern Carolina)
Organising department: Department of Economics
Part of: Department of Economics Seminar
Booking required?: Not required
Audience: Members of the University only
Editors: Erin Saunders, Melis Clark