Lecture 6: Tests and theories of pure coordination games

In the last lecture we looked at the various types of coordination game and
looked at Schelling’s ideas about salience.

In this lecture we will focus on matching games and examine some of the
theories surrounding them.

We will move beyond 2x2 games to look at far more general examples of
coordination games.

One of the first investigations was by Mehta, Starmer and Sugden (1994).

They investigate the Schelling theory more formally.

{Even though they call their games pure coordination games, they tend to refer
only to matching games}

First they define the notion of a “label” – each strategy has an individual label
which may be words, pictures, symbols or anything else.

So: when choosing a strategy a player chooses a label as well.

c.f. Heads and Tails: Each player must write down “heads” or “tails” and if they
both write the same then they get a prize.
In a matching game:

Square 1 Square 2 Circle Square 3 Square 4

Square 1 10,10 0,0 0,0 0,0 0,0
Square 2 0,0 10,10 0,0 0,0 0,0
Circle 0,0 0,0 10,10 0,0 0,0
Square 3 0,0 0,0 0,0 10,10 0,0
Square 4 0,0 0,0 0,0 0,0 10,10

The coordination payoffs are all the same so there is no way to distinguish
between the payoffs in the game.

However, the strategies have been “labelled” with one in particular, “Circle”,
being salient.

The above can be seen as an example of such a game where subjects have to
pick an object and those who pick the same object get £10.
Traditionally, game theorists may argue that labels are irrelevant since all
information should be included in the payoffs.

If labels are irrelevant then one would expect people to randomly choose
between the strategies so that the chances of coordinating in this case would be
1/5 giving an average payoff of 2.

However, Schelling’s point is that there is on obvious difference between the

strategies- One is a circle and the others are squares. The circle is salient.

Mehta et al. put together three possible ideas about how salience operates.

i) Primary salience- some process exists that brings a label to people’s minds
and this is chosen.

ii) Secondary/ “level-n” salience. Each player chooses a strategy that she
believes has primary salience for her opponent. OR a player chooses a strategy
that she believes her opponent believes that has primary salience for her etc.

iii) Schelling Salience- People when trying to coordinate look for a universal
rule of selection that is salient to people who are trying to solve coordination
problems.

Experiment: Designed to distinguish primary salience from the other two types.

Two groups: P and C.

20 Coordination questions asked of each group- in one group (“P”) the subjects
were asked simply to select an answer while in the other group (“C”) they were
explicitly asked to coordinate.

The first group is being tested for primary salience, while the other group is
asked to coordinate- suggesting secondary salience.
In general it was found that primary salience did exist with substantial picks of
salient answers in the “P” group but that significantly more people chose it in
the “C” group.

This implied that there was also some secondary/Schelling salience happening
so people were using salience to coordinate.

The experiment was not designed to distinguish between secondary and

Schelling salience. However there were some indications that Schelling salience
dominated- the most frequent choices in the C groups did sometimes vary from
the most frequent choices in P groups which may indicate that the salient
choices in C were being used as a rule for the purposes of coordination.

Variable Frame theory (Bacharach 1993- also Janssen 1997 and Casajus 2001)

Frame: a collection of labels possessed by each “object” available to be picked

in a “choosing sides” game.

Labels combine into descriptions: “Yellow Square”, “Red Circle” “Blue

Square”, “Red Square”.
If shape is only characteristic used then red circle will be chosen OR a random
choice made between the squares.

If “object” is the only characteristic then there would be a random picking

between the four objects.

Assuming a payoff of 1 if both select the same object:

C S O

C 1,1 0,0 0.25,0.25

S 0,0 0.333,0.333 0.25,0.25

O 0.25,0.25 0.25,0.25 0.25,0.25

There are three pure strategy equilibria here: {C,C}, {S,S} and {O,O}.
Variable frame theory (unlike conventional game theory) assumes payoff
dominance as a behavioural assumption so {C,C} is selected and the red circle
would be selected.

Adding in colour as an additional characteristic complicates the issue.

There are two aspects to salience:

i) Rarity- players pick an attribute that is rarer.

ii) Availability- players pick an attribute that is more noticeable.

In coordination games these will be judged according to how the opponent

judges them.

Sometimes these may work in the same direction. Sometimes there may be a
tradeoff between the two factors.

In the above, there are two characteristics: shape and size (lower right square is
smaller). Whether a circle is chosen at random or the smaller square is chosen
depends on how one judges whether one’s opponent has noticed the smaller
square.