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The Potential of Social Identity for Equilibrium Selection

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Abstract:

When does a common group identity improve efficiency in coordination games? To answer this question, we propose a group-contingent social preference model and derive conditions under which social identity changes equilibrium selection. We test our predictions in the minimum-effort game in the laboratory under parameter configurations which lead to an inefficient low-effort equilibrium for subjects with no group identity. For those with a salient group identity, consistent with our theory, we find that learning leads to ingroup coordination to the efficient high-effort equilibrium. Additionally, our theoretical framework reconciles findings from a number of coordination game experiments.

Document Type: Research Article

DOI: https://doi.org/10.1257/aer.101.6.2562

Publication date: 2011-10-01

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