Collaborative Research: "Do Actions Speak Louder Than Words? Observation of Others Versus Cheap Talk as Coordination Devices

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How do individuals achieve coordination on `good outcomes` in simple one shot strategic situations? One much explored possibility is that they engage in some kind of preplay communication- cheap talk-in which they endeavor to convince one another of the actions they intend to play. Another, less explored, possibility is that individuals take account of the past actions of their partners when deciding which actions to play. While these two possibilities have been considered separately, there has been no research that compares the relative importance of these two devices as aids in solving coordination problems. This project involves an experiment with human subjects that will allow for a comparison of the roles played by cheap talk and observation of past actions as devices for achieving coordination on good outcomes. The effect of cheap talk or observation of past actions will also be compared with the standard (control) case where cheap talk or observation of past actions is not allowed. In all cases, subjects will play simple two player games and will be paid according to their performance in each game. The results of this experiment will be used to extend game theoretic models of how individuals incorporate notions of fairness into their decisions and how they make use of the different types of information available in strategic environments. At a more aggregate level, the experimental results will provide a better understanding of the relative merits of cheap talk and observation of past actions as devices for ensuring `good outcomes` in simple one shot strategic contests. Such information will be useful not only to economists but to a much wider audience, including policymakers and others who are in a position to influence the actions or expectations of the public.