Clocks and Trees: Isomorphic Dutch Auctions and Centipede Games

We report an experiment on effects of varying institutional format and dynamic structure of centipede games and Dutch auctions. Centipede games with a clock format unravel, as predicted by theory but not reported in previous literature on two‐player tree‐format centipede games. Dutch auctions with a tree format produce bids close to risk neutral Nash equilibrium bids, unlike previous literature on clock‐format Dutch auctions. Our data provide a new, expanded set of stylized facts which may provide a foundation for unified modeling of play in a class of games that includes centipede games and Dutch auctions.     

On the Existence of Pure and Mixed Strategy Nash Equilibria in Discontinuous Games

A game is better-reply secure if for every nonequilibrium strategy x^* and every payoff vector limit u^* resulting from strategies approaching x^*, some player i has a strategy yielding a payoff strictly above u_i^* even if the others deviate slightly from x^*. If strategy spaces are compact and convex, payoffs are quasiconcave in the owner's strategy, and the game is better-reply secure, then a pure strategy Nash equilibrium exists. Better-reply security holds in many economic games. It also permits new results on the existence of symmetric and mixed strategy Nash equilibria.     

Fast Equilibrium Selection by Rational Players Living in a Changing World

We study a coordination game with randomly changing payoffs and small frictions in changing actions. Using only backwards induction, we find that players must coordinate on the risk‐dominant equilibrium. More precisely, a continuum of fully rational players are randomly matched to play a symmetric 2×2 game. The payoff matrix changes according to a random walk. Players observe these payoffs and the population distribution of actions as they evolve. The game has frictions: opportunities to change strategies arrive from independent random processes, so that the players are locked into their actions for some time. As the frictions disappear, each player ignores what the others are doing and switches at her first opportunity to the risk‐dominant action. History dependence emerges in some cases when frictions remain positive.