Alaoui, Larbi, Janezic, Katharina A. and Penta, Antonio (2022) Coordination and Sophistication. TSE Working Paper, n. 22-1394, Toulouse

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How coordination can be achieved in isolated, one-shot interactions without com-munication and in the absence of focal points is a long-standing question in game theory. We show that a cost-benefit approach to reasoning in strategic settings delivers sharp theoretical predictions that address this central question. In particular, our model predicts that, for a large class of individual reasoning processes, coordination in some canonical games is more likely to arise when players perceive heterogeneity in their cognitive abilities, rather than homogeneity. In addition, and perhaps contrary to common perception, it is not necessarily the case that being of higher cognitive sophistication is beneficial to the agent: in some coordination games, the opposite is true. We show that subjects’ behavior in a laboratory experiment is consistent with the predictions of this model, and reject alternative coordination mechanisms. Overall, the empirical results strongly support our model.

Item Type: Monograph (Working Paper)
Language: English
Date: December 2022
Place of Publication: Toulouse
Uncontrolled Keywords: coordination, cognitive cost, sophistication, strategic reasoning, value of reasoning
JEL Classification: C72 - Noncooperative Games
C91 - Laboratory, Individual Behavior
C92 - Laboratory, Group Behavior
D80 - General
Divisions: TSE-R (Toulouse)
Institution: Université Toulouse 1 Capitole
Site: UT1
Date Deposited: 15 Dec 2022 08:15
Last Modified: 13 Jan 2023 10:37
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