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Journal of Risk and Uncertainty

, Volume 56, Issue 3, pp 237–257 | Cite as

Spatial externalities and risk in interdependent security games

  • Stephan Kroll
  • Aric P. Shafran
Article
  • 160 Downloads

Abstract

Individuals regularly invest in self-protection to reduce the risk of an adverse event. The effectiveness of self-protection often depends on the actions of other economic agents and can be modeled as a stochastic coordination game with multiple Pareto-ranked equilibria. We use lab experiments to analyze tacit coordination in stochastic games with two kinds of interdependencies in payoffs: “non-spatial” in which every agent’s action has an impact on the risk faced by every other agent, and “spatial” in which agents only impact the risk faced by their immediate neighbors. We also compare behavior in the stochastic games to deterministic versions of the same games. We find that coordination on the payoff-dominant equilibrium is significantly easier in the deterministic games than in the stochastic games and that spatial interdependencies lead to greater levels of coordination in the deterministic game but not in the stochastic game. The difficulty with coordination observed in the stochastic games has important implications for many real-world examples of interdependent security and also illustrates the importance of not relying on data from deterministic experiments to analyze behavior in settings with risk.

Keywords

Self-protection Risk mitigation Experiments Interdependent security Coordination game 

JEL Classifications

D81 C91 

Supplementary material

11166_2018_9280_MOESM1_ESM.pdf (1.1 mb)
(PDF 1.05 MB)

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Copyright information

© Springer Science+Business Media, LLC, part of Springer Nature 2018

Authors and Affiliations

  1. 1.Department of Agricultural and Resource EconomicsColorado State UniversityFort CollinsUSA
  2. 2.Department of Economics, Orfalea College of BusinessCalifornia Polytechnic State UniversitySan Luis ObispoUSA

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