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Zbwleibniz-Informationszentrum A Service of Leibniz-Informationszentrum econstor Wirtschaft Leibniz Information Centre Make Your Publications Visible. zbw for Economics Chierchia, Gabriele; Tufano, Fabio; Coricelli, Giorgio Working Paper The differential impact of friendship on cooperative and competitive coordination CeDEx Discussion Paper Series, No. 2020-07 Provided in Cooperation with: The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx) Suggested Citation: Chierchia, Gabriele; Tufano, Fabio; Coricelli, Giorgio (2020) : The differential impact of friendship on cooperative and competitive coordination, CeDEx Discussion Paper Series, No. 2020-07, The University of Nottingham, Centre for Decision Research and Experimental Economics (CeDEx), Nottingham This Version is available at: http://hdl.handle.net/10419/228371 Standard-Nutzungsbedingungen: Terms of use: Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Documents in EconStor may be saved and copied for your Zwecken und zum Privatgebrauch gespeichert und kopiert werden. personal and scholarly purposes. Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle You are not to copy documents for public or commercial Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich purposes, to exhibit the documents publicly, to make them machen, vertreiben oder anderweitig nutzen. publicly available on the internet, or to distribute or otherwise use the documents in public. Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, If the documents have been made available under an Open gelten abweichend von diesen Nutzungsbedingungen die in der dort Content Licence (especially Creative Commons Licences), you genannten Lizenz gewährten Nutzungsrechte. may exercise further usage rights as specified in the indicated licence. www.econstor.eu Discussion Paper No. 2020-07 Gabriele Chierchia Fabio Tufano The Differential Impact of Giorgio Coricelli Friendship on Cooperative and Competitive Coordination May 2020 CeDEx Discussion Paper Series ISSN 1749 - 3293 The Centre for Decision Research and Experimental Economics was founded in 2000, and is based in the School of Economics at the University of Nottingham. The focus for the Centre is research into individual and strategic decision-making using a combination of theoretical and experimental methods. On the theory side, members of the Centre investigate individual choice under uncertainty, cooperative and non-cooperative game theory, as well as theories of psychology, bounded rationality and evolutionary game theory. Members of the Centre have applied experimental methods in the fields of public economics, individual choice under risk and uncertainty, strategic interaction, and the performance of auctions, markets and other economic institutions. Much of the Centre's research involves collaborative projects with researchers from other departments in the UK and overseas. Please visit http://www.nottingham.ac.uk/cedex for more information about the Centre or contact Suzanne Robey Centre for Decision Research and Experimental Economics School of Economics University of Nottingham University Park Nottingham NG7 2RD Tel: +44 (0)115 95 14763 [email protected] The full list of CeDEx Discussion Papers is available at http://www.nottingham.ac.uk/cedex/publications/discussion-papers/index.aspx The Differential Impact of Friendship on Cooperative and Competitive Coordination GABRIELE CHIERCHIA, FABIO TUFANO AND GIORGIO CORICELLI† Abstract: Friendship is commonly assumed to reduce strategic uncertainty and enhance tacit coordination. However, this assumption has never been tested across two opposite poles of coordination involving either strategic complementarity or substitutability. We had participants interact with friends or strangers in two classic coordination games: the stag hunt game, which exhibits strategic complementarity and may foster “cooperation”, and the entry game, which exhibits strategic substitutability and may foster “competition”. Both games capture a frequent trade-off between a potentially high paying but uncertain option and a low paying but safe alternative. We find that, relative to strangers, friends are more likely to choose options involving uncertainty in stag hunt games but the opposite is true in entry games. Furthermore, in stag hunt games, friends “tremble” less between options, coordinate better and earn more, but these advantages are largely decreased or lost in entry games. We further investigate how these effects are modulated by risk attitudes, friendship qualities and interpersonal similarities. Keywords: coordination; entry game; friendship; strategic complementarity; strategic substitutability; stag hunt game; strategic uncertainty. JEL classification codes: C72, C92, D80 Acknowledgments: We thank Isabelle Brocas, Juan Carrillo, John Gathergood, Aldo Rustichini and Silvia Sonderegger for their helpful comments, as well as Roberta Bianco, Elsa Fouragnan, Anna Balatel and Luca Polonio for their support. The authors also declare no material financial interest in the research reported in this paper. † Chierchia: Center for Mind/Brain Science, University of Trento, Italy, and University College London, Institute of Cognitive Neuroscience, 17 Queen Square, London WC1N 3AR, UK – email: [email protected]. Tufano: University of Nottingham, School of Economics, Sir Clive Granger Building, University Park, Nottingham, NG7 2RD, UK – email: [email protected]. Coricelli: Center for Mind/Brain Science, University of Trento, Italy, and Department of Economics, KAP 306D, University of Southern California, 3620 S. Vermont Avenue, Los Angeles, CA 90089-0253, USA – email: [email protected]. 1 1. Introduction Coordination problems arise widely in social and economic contexts: from teams in the workplace (e.g., Lazear and Shaw 2007) to organizations (e.g., Milgrom and Roberts 1992); from collective actions (e.g., Chwe 2013) to macroeconomics (e.g., Cooper and John 1988). From a game-theoretic perspective, coordination problems are characterised by multiplicity of Nash equilibria. As such, they pose a problem of equilibrium selection, which has been suggested to constitute “the most difficult problem in game theory” (Camerer, 2003, p. 336). Most of the experimental research to date on equilibrium selection in coordination games has focused on how structural features (e.g., payoffs) of coordination games affect equilibrium selection and, consequently, the potential of social closeness as a coordination devise has remained largely unexplored (e.g., Camerer 2003; Devetag and Ortmann 2006). Economics has traditionally assumed a parsimonious “social void” of homogeneous individuals (Charness, Haruvy, and Sonsino 2007),1 whereas other social sciences tend to explain social behaviour by assuming that individuals are heterogeneous along various important dimensions such as their degree of relatedness (e.g., Hamilton 1964), their interpersonal similarities (e.g., McPherson, Smith-Lovin, and Cook 2001) or their group membership (e.g., Tajfel and Turner 1979). These factors portray the notion of a social space in which, since very early infancy (e.g., Meltzoff 2007), across cultures (e.g., Apicella et al. 2012), and even across species (e.g., Massen and Koski 2014), tuning behaviour to the “social closeness” of others seems to be the rule rather than the exception in social interactions. Here, we turn to such a social space and ask whether social closeness, and friendship as a paradigmatic instantiation of closeness, may play a role as a coordination device. 1 Notable exceptions are Charness et al. (2007), Cobo-Reyes and Jiménez (2012), Chen and Chen (2011), and Gächter et al. (2019). Charness et al. (2007) prove how salient group membership increases coordination rates in a battle of the sexes game. Cobo-Reyes and Jiménez show the efficiency-reducing effect of social closeness in two novel asymmetric coordination games. Chen and Chen (2011) evidence how lab-induced group identity improves coordination in a two- player weak-link game with a continous action space. Gächter et al. (2019) demonstrate the efficiency-enhancing effect of pre-existing social closeness in a four-player weak-link coordination game with five possible actions. 2 So far, a number of experimental studies have shown that many different forms of social closeness impact significantly on economic decisions, generally by increasing prosocial behavior.2 Friendship makes no exception: several economic experiments demonstrate how friendship strongly predicts trustworthiness (Glaeser et al. 2000); has positive effects on microcredit repayments (Abbink, Irlenbusch, and Renner 2006); boosts reciprocal behaviour (Reuben and van Winden 2008); enhances dictator giving (Leider et al. 2009; Goeree et al. 2010); increases favoritism in variants of trust games (Brandts and Solà 2010). However, no study has asked whether the positive association between friendship and coordination is stable across opposite families of games, namely games of strategic complements and substitutes. Games of strategic complements involve strategies that mutually enforce one another: that is, players have incentives to match their actions. For instance, putting in few extra hours of work in order to complete your part of a group task on time may be worthwhile for everyone only if the other colleague does the same, and wasteful otherwise. By contrast, games of
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