Doctoral Dissertation Research in DRMS: Costly Communication and Coordination in Organizations

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Coordination is critical to the social interactions of everyday life, as well as solving important problems such as how to avoid bank runs or how to get a group of people to work together as an effective team. In this Doctoral Dissertation Research Improvement Grant, the co-PI will conduct research to better understand coordination problems like these where strategic uncertainty makes the Pareto efficient equilibrium risky. That is, when an ideal outcome clearly exists, how does uncertainty about the actions of others undermine success and how can such failures be avoided? By using controlled laboratory experiments, the researchers will isolate key features of these real world problems in order to understand what leads to success or failure at a fundamental level. The first experiment uses simple messages and explicit costs in a coordination game with only two players and two strategies. Even in this highly idealized environment, the results show that very small communication costs dramatically decrease the use of messages but increase the frequency of tacit coordination. The second experiment follows the same approach but uses many players and many strategies in order to determine whether the previous findings apply to more complex interactions. The third experiment explores behavior in an environment that more closely models that of real firms, including free text chat and opportunity costs (as opposed to out-of-pocket costs) of communication. Each of these experiments builds directly from existing research and together will form the groundwork for a better understanding of costly communication and its effects on strategic uncertainty and coordination.