Abstract
Within-group communication in competitive coordination games has been shown to increase competition between groups and lower efficiency. This study further explores potentially harmful effects of communication, by addressing the questions of (1) asymmetric communication and (2) the endogenous emergence of communication. Our theoretical analysis provides testable hypotheses regarding the effect of communication on competitive behavior and efficiency. We test these predictions using a laboratory experiment. The experiment shows that although asymmetric communication is not as harmful as symmetric communication, it leads to more aggressive competition and lower efficiency relative to the case when neither group can communicate. Moreover, groups vote to endogenously establish communication channels even though they would earn higher payoffs if jointly they chose to restrict within-group communication.
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Notes
Although Sutter and Strassmair (2009) also document that communication within groups increases individual efforts, such efforts lead to higher payoffs and higher efficiency under their design.
Groups win with equal probability if they both have a lowest effort equal to 0.
To make this point more clear, examine the following example. Assume that there are two 3-player groups and the prize value is 60 (these are the parameters that we use in our experiment). The prediction for the NC–NC treatment is that both non-communicating groups should coordinate by exerting efforts anywhere between 0 and 15. Also, assume that in the NC–NC treatment, both groups actually choose 8 as their effort (which is very close to what we observe in our experiment). So, each player earns 22 (i.e., 60 × 8/(8 + 8) − 8 = 22). If the non-communicating group does not change its behavior in the C––NC treatment, then the communicating group can increase its payoff by best responding to 8 and choosing 14 (i.e., (8 × 60)1/2 − 8≈14). The corresponding payoff of the communicating group in the C–NC treatment is 24 (i.e., 60 × 14/(14 + 8) − 14 ≈ 24), which is higher than the payoff of the non-communicating group in the NC–NC treatment. Therefore, if the other group chooses not to communicate, choosing to communicate is a dominant strategy.
Subjects were informed that the session would last for exactly 30 periods, so the stage equilibrium prediction also holds for this finitely repeated game. As noted above, we conjectured that groups or individuals might coordinate on Pareto-improving outcomes in the repeated game, since this is frequently observed in the experimental literature even in finitely-repeated games with a unique equilibrium (e.g., Selten and Stoecker 1986).
Probabilities were explained in the instructions as a number of tokens placed in a bingo cage based on effort choices, and then one token draw determined the winning individual or group.
Another option was to allow subjects to vote every round to decide whether they want to communicate or not. However, it would substantially delay the experiment (by about an hour) and it would also create incentives for subjects to avoid lengthy communications. Another concern is that after subjects choose to communicate after period 10 (i.e., they end up in the C–NC or C–C treatment), they can devise a future strategy in case when such communication is not available. However, reading through chats we did not find this to be the case.
As we expect that people have a natural tendency to communicate, we adopted a very strict voting rule—groups must reach a unanimous decision in a single vote to open the communication channel to increase the occurrence of the endogenous C–NC treatment. It turned out that among the 72 subjects, only 7 subjects voted against communication in the first voting round and they belonged to 7 different groups. Thus if we had used a majority rule, we would only observe the endogenous C–C treatment. The second vote before period 21 gives groups another chance to decide whether they want to communicate. It could provide perhaps the clearest evidence of the desirability of communication if groups switched from communication to no-communication.
All non-parametric tests employ only the independent observations of six subjects. Similar results hold when considering only the later 20 periods.
Wasted effort is calculated by taking the average of the differences between individual effort and the group minimum effort within each group (Riechmann and Weimann 2008). Complete coordination is reached when wasted effort equals zero.
As with other results summarized here, conclusions are unchanged if only later periods are analyzed.
Looking at the data from periods 1–10, we did not find any significant difference in group effort, wasted effort and payoffs between the 7 groups that voted against communication and the 17 groups that voted for communication. Given that communication is costless and groups have not yet experienced the potential harmful effect of communication, it is puzzling why these 7 subjects chose not to communicate.
Three out of 7 subjects who voted against communication in the first vote continued choosing not to communicate in the second vote. The 4 groups that switched to communication in second vote all earned less than their opponent groups during periods 11–20.
Only 1 of the 17 groups who communicated in periods 11–20 chose not to communicate in periods 21–30. This group faced very aggressive competition from the opponent group after communication was enabled and raised average effort from about 9 tokens in the first 10 periods to an average of 27.8 (compared to 22.3 by their opponent) in the second 10 periods. Although their average effort was higher than the opponent group, they only won 40% of the time. In this group, members expressed frustration via chat in period 19 [session 120827_1512, group 2]: “ID6: sad….” “ID 5: we have lost the last 3”; “ID 4: yeah they have had better odds luck”. In period 20, ID 5 put in 0 tokens deviating from the proposal of “ok do 34 again”. Perhaps as a result of this deviation, ID 6 voted against communication in period 21. Their opponent group who continued to communicate commented in period 21: “they don’t communicate lol” “I know” “lol” “stupids” “and put 0 lol” “lets keep this going” “they lose the advantage”.
Recall, in the Endogenous treatment, groups were not allowed to vote to open the communication channel until period 11. There was only one pair of groups each endogenously chose not to communicate in periods 11–20 and no pair in periods 21–30. We report the data from periods 1-10 for the NC-NC outcome in endogenous treatment (the first blue bar in the figure). All other comparisons use data from periods 11–30.
The only exception is the comparison between communicating groups in C–NC and en_C–NC (0.3 vs. 1.3; Mann–Whitney test, p value = 0.07, n = 8, m = 7).
Before the subjects played 30 periods of the stage game, we elicited subjects’ risk attitudes using multiple price list of 15 simple lotteries, similar to Holt and Laury (2002). Specifically, subjects were asked to state whether they preferred safe option A or risky option B. Option A yielded $1 payoff with certainty, while option B yielded a payoff of either $3 or $0. The probability of receiving $3 or $0 varied across all 15 lotteries. The first lottery offered a 0% chance of winning $3 and a 100% chance of winning $0, while the last lottery offered a 70% chance of winning $3 and a 30% chance of winning $0. At the end of the session, one of the 15 lottery decisions was randomly selected for payment. Overall, 74% of the subjects are risk averse in both the exogenous and endogenous treatments. Theoretically it is not clear how risk aversion may impact individual behavior in our game. However, most studies find that in simple lottery contests more risk-averse subjects choose lower efforts than less risk-averse subjects (Sheremeta and Zhang 2010; Shupp et al. 2013; Dechenaux et al. 2015).
Indeed, we find that in the C–NC treatment, the communicating group wins significantly more often than the non-communicating group.
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Acknowledgements
We thank Jordi Brandts, Subhasish Chowdhury, David Cooper, Martin Dufwenberg, Enrique Fatas, Anya Samek, Marta Serra-Garcia, two anonymous referees, seminar participants at University of New South Wales, University of Technology, Sydney, Chapman University, Purdue University and participants at the Thurgau Experimental Economics Conference, the International Economic Science Association Meetings, the North-American Economic Science Association Meetings, the European Economic Science Association Meetings, and the workshop in honor of John Van Huyck for helpful discussions and comments. We retain responsibility for any errors. This research has been supported by National Science Foundation (SES-0721019).
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Cason, T.N., Sheremeta, R.M. & Zhang, J. Asymmetric and endogenous within-group communication in competitive coordination games. Exp Econ 20, 946–972 (2017). https://doi.org/10.1007/s10683-017-9519-2
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DOI: https://doi.org/10.1007/s10683-017-9519-2