Paper Presentation: Dominated Strategies in Co-ordination Games

June 21, 12.20-12.50: Atiyeh Yeganloo, The University of Manchester

A Useful Bias: the Role of Dominated Strategies in Coordination Game

In games with multiple Nash equilibria, coordination failure can lead to off-equilibria and (Pareto) dominated outcomes. I use the dominance effect, a commonly observed bias in individual choices, to facilitate coordination among players in games.

Dominance effect predicts that the addition of a dominated alternative increases the psychological attractiveness of the dominating alternative.
Whereas, dominated alternatives are irrelevant under the rationality assumption.

A dominated strategy in games can affect both players’ strategy choices and facilitate coordination toward one of Nash equilibria of the games.
Results from an experiment on the 2×2 Battle of Sexes games, with a dominated strategy for row players, is consistent with this prediction.

Observed choices of row players differ depending on the presence of the dominated strategy. Column players anticipate row players’ choices when the dominated strategy presents. Column players coordinate on their strategy choices to reach to the relevant equilibrium.

Further, I study if the dominance effect carries over from risky choices to games. That is, players biased by a dominated lottery in risky choices are more likely to show the bias in games. This bias is shown to be present in risky choices. There is no correlation at individual level between games and lotteries regarding the dominated alternative and its effect.