Discussion paper

DP16644 Coordination with Cognitive Noise

We experimentally study how cognitive noise affects behavior in coordination games. Our key testable prediction is that equilibrium behavior depends on context – which we define as the distribution from which games are drawn. This prediction arises from players efficiently using their limited cognitive resources; furthermore, this prediction distinguishes cognitive noise from a large class of alternative behavioral game theory and learning models. Experimentally, we find that subjects coordinate more frequently when game payoffs are drawn from a narrower distribution. Nearly 50% of the variability in behavior can be attributed to cognitive noise rather than alternative sources of strategic uncertainty.

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Citation

Frydman, C and S Nunnari (2021), ‘DP16644 Coordination with Cognitive Noise‘, CEPR Discussion Paper No. 16644. CEPR Press, Paris & London. https://cepr.org/publications/dp16644