Loss-Avoidance and Forward Induction in Experimental Coordination Games
Year: 1996
Type: article
Abstract: We report experiments on how players select among multiple Pareto-ranked equilibria in a coordination game. Subjects initially choose inefficient equilibria. Charging a fee to play (which makes initial equilibria money-losing) creates coordination on better equilibria. When fees are optional, improved coordination is consistent with forward induction. But coordination improves even when subjects must pay the fee (forward induction does not apply). Subjects appear to use a “loss-avoidance” selection principle: they expect others to avoid strategies that always result in losses. Loss-avoidance implies that “mental accounting” of outcomes can affect choices in games.
DOI: 10.2307/2946661
Authors: G. P. Cachon, C. F. Camerer
Institutions: Duke University, California Institute of Technology
Language: English
Subfield: Safety Research
Field: Social Sciences
Domain: Social Sciences
Open Access status: green
OpenAlex ID: W1963862009