Lecture 5: Coordination games

Coordination games are symmetric non-competitive games with more than one
Nash equilibrium where both players have an interest in achieving any one
equilibrium.

There are various “versions” of the coordination problem. These can be seen to
add more complexity and subtlety to the problem.

Coordination matters for various reasons:

i) Many aspects of social life rely on coordination:

a) Speaking the same language.

b) Walking along a pavement.

c) Using the same currency.

d) Going over a crossroads.

e) Implicit bargaining.

Some of these are forced coordination by outside authorities- others are

spontaneous.

ii) Discoordination is highly inefficient.

iii) Coordination is more complex than it looks- one needs to coordinate one’s
expectations with the other party.

iv) Coordination is the most obvious example of factors external to game

payoffs influencing choices.

v) Coordination games have formed the basis of many “alternative” views of

game theory.
A 2x2 coordination game is a symmetric non-competitive game with two Nash
Equilibria.

We will look at three types:

“Choosing sides”/ “Matching”

LEFT RIGHT
UP 10,10 0,0
DOWN 0,0 10,10

Pure Coordination Game:

LEFT RIGHT
UP 10,10 0,0
DOWN 0,0 5,5

“Stag- Hunt” Game:

LEFT RIGHT
UP 10,10 0,9
DOWN 9,0 5,5

Pure coordination game:

At face value this looks easy to solve: players should choose {UP, LEFT}.

However in game theoretic terms this is remarkably hard to justify.

If you are a row player then you can only justify playing UP if you think that
the column player is going to play LEFT.

If you think that the column player is going to play RIGHT then you should
play DOWN.

The question then becomes one of expectations: what do you expect the other
player to do?

One answer is that the column player should play LEFT. However this depends
on what the column player believes the row player is going to do. If the column
player believes the row player will play DOWN then they will play RIGHT.

This puts the onus back on the row player to play UP. However this depends on
their beliefs about column’s play etc.

The expectations go backwards and forwards ad infinitem.

The “matching” game is even more difficult as there is no difference in the two
equilibria payoffs.

The question is: how can we break out of this expectational vicious circle?
Note that, unlike the previous games we have looked at, there is no game theory
solution to this problem that can be tested in experiments.

This means that we need to find ways of isolating solutions that are outside
game theory, even before we start testing.

Schelling:

The first ideas come from Thomas Schelling’s work on bargaining theory.

According to Schelling, the crucial concept is that of salience-

Experiment:

Name "heads" or "tails." If you and your partner name the same, you both win a
prize.

86% chose heads.

Note that this has the same form as a 2x2 coordination game.

However, this can be expanded to much broader examples:

Experiment:

Name any positive number- if you both write the same number then you win.

40% of people write “1”.

Experiment

You and your partner have some money that you must split into two piles with
one pile belonging to each person. You must each state your desired split before
it happens and without communicating. If you agree then you will get the
money in your pile.

87% of people split 50:50.

In each of these cases one of the outcomes “sticks out” more than the others
and is chosen more.

A player who notices this and judges that other players will notice this as well
can use this as a guide to play.

It is obvious that this is a place on which to coordinate and it is also obvious to

other parties.

This unravels the problem given above. Everyone knows that everyone else
knows that this is obvious. Hence their expectations are coordinated as well as
their play.

LEFT RIGHT
UP 10,10 0,0
DOWN 0,0 5,5

In this case the {UP, LEFT} sticks out because of the higher value and so will
be chosen because of its coordinating role.
However, in the matching game:

LEFT RIGHT
UP 10,10 0,0
DOWN 0,0 10,10

There is no such asymmetry in payoffs. It follows that we are reliant on

external, contextual factors to choose in this case.

{Note that a game is an abstraction of a real situation so there will always be

some contextual factors.}

However we need to have some idea of the type of thing that will stick out in
the “context”.