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Ulric B. and Evelyn L. Bray Social Sciences Seminar

Tuesday, November 13, 2018
4:00pm to 5:00pm
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Baxter B125
A Road to Efficiency Through Communication and Commitment
Joao Ramos, Assistant Professor, Marshall School of Business, USC,

Abstract: We examine the efficiency gains of introducing a pre-play phase—allowing agents to communicate their intentions and commit to them—in a game with Pareto ranked equilibria. We focus on a game in which a Pareto inferior equilibrium is usually chosen. We first derive the theoretical conditions under which the efficient equilibrium is unique in the extended game and then we test our theory in the lab. The introduction of the pre-play revision phase increases the coordination on the Pareto dominant equilibrium, restoring over 50% of the efficiency lost in the standard setting. The results shed new light on cheap talk and reveal that a combination of communication and commitment leads to significantly higher welfare.

For more information, please contact Mary Martin by phone at 626-395-5884 or by email at [email protected].