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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